How do companies that have a very tight and efficient close process deal with accruals?

An accrual is an accounting estimate. Companies with 1 to 3 day closes have started with discussing and validating the purpose of the estimate (ensuring everyone is "on the same page", followed by analysis of the process and the historical accuracy of the estimate (including what caused the estimate to be "off" from month to month). Essentially, those companies with a tight close are the ones that have taken the time to understand the drivers of the estimate and have refined their ability to make those estimates, in many cases being able to make those estimates prior to the month end cut-off. The nature and type of the accrual will drive how easy/difficult it is to obtain hyper-efficiency. My experience has shown that lack of standardization and reliance on manual processes when the automated solution is already in place (but underutilized) are key reasons for poor efficiency and accuracy with accruals.

Cheers. Philip

Assuming a non-public company:

I try to minimize as many accrual items as possible, such as payroll, and as Philip said, develop standardized solutions.

Year-end is the exception to the standardized solution, in that all accruals need to be accurately accessed.

One of the keys for an efficient close is an accounting calendar. For example Thursdays are payable check days or Fridays at noon payables are cut-off for this week. An accounting calendar - what is scheduled when - is required to turn accounting operations into a predictable flow instead of an exception or response based process. Exception processes should require a higher bar of need and approval if you are looking for an efficient close.

Beyond this, more things are usually pushed into accruals instead of less. People don't keep the next month open for two weeks waiting for transactions to catch up. Only on a quarterly basis do people stop to more completely update their transaction ledger. This requires having a decent purchasing function in place to help predict the required accruals, a manufacturing process (if appropriate) with a weekly financial close for inventory values, and a process that captures sales transactions efficiently especially at month end.

I beleive Proformative has scheduled seminars on efficient close processes as well that focus on document tracking and defined business processes. Could be interesting to sit in on one of those sessions for ideas ...

Bob Scarborough (Tensoft)

I agree with Bob on attending scheduled seminars where you can discuss divergent view points on accruals. We do it on the 25th of the month for a monthend close. Others may do it differently. But year end accruals are crucial.