Continuous accounting is gaining momentum, with some proponents claiming the strategy will soon become standard operating procedure. SAP users who want to make the transition to continuous accounting can do so with relative ease using standard SAP out-of-the-box capabilities.
Limited staff and a compressed timeframe can make closing the books at the end of the month challenging, so many companies are turning to continuous accounting to smooth out the workload and achieve faster closings. Business Planning and Consolidation is one SAP tool that could potentially help with continuous accounting.
Here’s a look at the concept of continuous accounting and how users can achieve it with SAP products.
What is continuous accounting?
In a traditional period-end scenario, a company’s finance department shuts off transaction processing for the prior month, reconciles accounts, creates adjusting entries, runs currency revaluations, calculates eliminations and creates consolidated statements. Theoretically, all that work begins just after the last day of each month and continues until the work is done.
With continuous accounting, a finance department spreads that work out over time and attempts to complete as much work as possible before the actual period-ending date. By running simulations based on the current month’s data, the finance department can validate transactions and balances in advance and begin to build a picture of financial results without waiting for all the information.
For example, most companies handle intercompany balances the same way. As money and resources shift from one corporate entity to another, balances are due to or from each company. Those intercompany receivables and payables should net out to zero across all companies under the corporate umbrella. If they don’t, then further research and adjustments are required.
Finance departments usually process intercompany transactions and reconcile those balances as a batch. Doing so can be a lot of work, and if that work all happens at the same time — that is, after month-end — then a finance department must take care of those tasks in addition to the rest of the intensive period-end workload.
With continuous accounting, a finance department might process intercompany transactions in smaller batches throughout each month or even on a transaction-by-transaction basis. Doing so saves the finance team time at the end of the month.
How can SAP support continuous accounting?
To truly take advantage of continuous accounting’s benefits, a financial team should run report simulations using live transactional ERP data. Doing so gives the finance team a look at what’s ahead and could potentially help the team discover possible questions or problems, then resolve them before the end of the month.
Historically, most finance teams have operated on more of a waterfall approach, in which various stages of the closing process must occur in a particular order. For example, if users generate financial statements from balances that they must first transfer from General Ledger to a reporting and consolidations platform, then producing interim simulations before the end of the month will be difficult.
SAP’s Business Planning and Consolidation (BPC) application solves that problem by pulling transactional data directly from S/4HANA. Users can also combine SAP data with information from non-SAP systems through BPC and get a complete picture of the enterprise, including subsidiaries running non-SAP systems.
BPC’s planning and forecasting capabilities and its other financial processes can also support continuous planning, as can SAP’s Financial Closing Cockpit and Advanced Financial Closing. Finance teams can use Financial Closing Cockpit and Advanced Financial Closing to build task lists and closing templates that include pre-closing milestones.