Financial close management (FCM) is a recurring process in
management accounting
In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.
Definition
One simple definition of management accounting is th ...
by which accounting teams verify and adjust account balances at the end of a designated period in order to produce financial reports representative of the company's true financial position to inform stakeholders such as management, investors, lenders, and regulatory agencies. The process starts with recording transactions as journal entries and end with preparing the financial reports for the period.
Overview
Closing the books involves consolidating transactions from multiple accounts, reconciling the information to ensure its validity, and identifying irregularities and errors that need to be adjusted. Accountants typically perform the close process monthly or annually. In the end, the trial balance — the list of all accounts from the general ledger — must balance: The sum of all debts must equal the sum of all credits.
Fluctuation analysis
In addition to reconciliations and adjustments, accounting teams track the health of the company by conducting fluctuation analysis (
flux analysis). Flux analysis involves aggregating data from multiple periods and identifying material fluctuations from period to period, and what caused them. This helps businesses identify warning signs before they turn into major issues, though — given the labor-intensive nature of the month-end close — many businesses struggle to find the time and energy to conduct a thorough fluctuation analysis.
Reporting
Businesses report differently based on their stakeholders and other interested parties.
For small businesses, reporting on a cash basis is considered adequate. For larger businesses, typically backed by investors, it is necessary to provide more in-depth reporting based on Generally Accepted Account Principles (
GAAP
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) in the United States and International Financial Reporting Standards (
IFRS
International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a standardised way of describing the company's fina ...
) elsewhere. These principles are a set of rules for accurate and consistent financial reporting and are mandatory for publicly traded companies.
Key Industry Players
The close management software market is growing rapidly and has several prominent players including:
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BlackLine: A platform providing tools for financial close, account reconciliation, and automation to improve accuracy and compliance.
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FloQast: Known for its user-friendly close management and accounting workflow tools that integrate easily with existing ERP systems.
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Workiva
Workiva, Inc. is a global software-as-a-service (SaaS) company. It provides a cloud-based connected and reporting compliance platform that enables the use of connected data and automation of reporting across finance, accounting, risk, and compli ...
: Offers end-to-end financial reporting and compliance solutions, enabling efficient collaboration for close and SEC filing processes.
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Numeric: Provides flexible, scalable financial close solutions tailored for organizations of all sizes seeking to improve close automation and reporting. Numeric has automated
flux analysis designed to explain month over month variances in line items.
See also
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Accounting
Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...
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Accounting software
Accounting software is a computer program that maintains accounting, account books on computers, including recording Financial transaction, transactions and Balance (accounting), account balances. It may depend on virtual thinking. Depending on ...
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Bookkeeping
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organizations. It involves preparing source documents for all transactions, operations, and other events of a business. T ...
References
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Accounting
Administrative theory