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Financial Statements Best Practices
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activities being conducted in a serial manner—that is, one process does not start
until another is finished. A good example is in a small organization where just
one person is in charge of completing several processing steps and does not have
time to advance to additional tasks until the first one is complete. The same prob-
lem occurs in large organizations but usually not due to a lack of manpower.
Instead, the information that flows into one process must be supplied by another
task, so the preceding step must be completely finished before the next one can
be started. These issues create a great deal of difficulty in reducing the time
needed to complete financial statements.
The best practice that eliminates serial activities is to convert them into
parallel ones. A parallel activity is one which can be completed without any
need for data from a preceding process. An example of several parallel closing
activities is shown in Exhibit 12.3, which depicts the accounts receivable,
accounts payable, fixed assets, and payroll processes. Only in one case, where
the final detail of the accounts payable process is needed as the starting point
for the fixed assets process, is there any linkage between the separate
processes. The trick to making this best practice work is to separate the individ-
ual processes that make up a financial statement closing so that they can be
independently processed. An example of this is using a preliminary set of
financial statements as the input into an allocation base from which occupancy
costs are allocated to various departments. By using older information in the
allocation base (see the ‘‘Complete Allocation Bases in Advance” section later
in this chapter), there is no longer a linkage between the two processes, so that
they can now be processed as parallel activities. Similarly, the accounts payable
function is not normally closed until several days have passed, while the com-
pany waits for a few supplier invoices to arrive. This serial processing issue is
readily avoided by using computer systems and real-time entry of receipts at
the warehouse (see the ‘‘Automate the Cutoff” section earlier in this chapter) to
create an accrual for all missing supplier invoices without waiting for the actual
invoices to arrive. Conducting a comprehensive review of all closing activities
and systematically converting serial activities into parallel ones is one of the
best ways to reduce the time needed to produce financial statements.

Cost: Installation time:

12–16 CREATE A CLOSING SCHEDULE
The worst enemy of a financial statement process is a disorganized closing. With-
out a sufficiently detailed procedure, no one will know when any deliverables are
needed or if some deliverables are needed at all. Further, there is no sequence to
the process so some steps are waiting for the completion of previous steps that no
one is working on. For example, the accounts payable module must be completed
before anyone can complete the fixed assets module since it is possible to over-