A company or organization’s ability to facilitate the accurate and timely processing of financial statements is one of the most powerful and strategic skillsets they have. Having an efficient, accurate, and transparent close is an essential step in ensuring organizations are making the best possible business decisions.
When conducting period close in an Oracle Cloud ERP solution, there are a few key things to keep in mind in terms of closing out certain modules. Here, we’ll explore the order in which you’ll need to close out your Cloud ERP modules as well as tips and tricks for overcoming ERP cloud financials potential obstacles for a smooth close.
Closing is defined as the accounting process where all transactions are closed at the end of a specified period determined by the organization so all supporting information is transferred to the General Ledger. Subledgers that exist within your Cloud ERP applications cannot be closed if the required transactions in that period are not correctly processed. Subledgers are the Cloud ERP applications that post, (transfer accounting records), to the General Ledger. This can include modules such as Payables, Receivables, Inventory, etc.
As superusers, accounting managers, and administrators, the responsibility of conducting period close will typically fall on the predesignated administrator assigned to each specific module or functional area. Organizations are looking for period close to be as speedy and accurate as possible, and with median time to complete close process coming in at 6.4 days*, organizations are looking for ways to improve this timeline.
Oracle Cloud ERP Period Close Process
How is it that administrators and Cloud ERP superusers can make period close more efficient and accurate? The key to facilitating a successful period close in Cloud ERP is the order in which you close out each module.
You’ll need to close Payables first. Closing Payables before closing Procurement is necessary because once the Accounts Payable period is closed, users cannot send Purchase Orders and receipts for Invoicing anymore. At this point, there will be unvoiced receipts available in the Procurement module, and you can then consider the period end purchasing accruals and accrue expenses on un-invoiced receipts.
You’ll need to close Payables before closing Inventory, Fixed Assets, and Projects. The reason you’ll need to close Inventory is that this is required to check that the un-invoiced accrual entries are accurate.
For Fixed Assets, you’ll be required to ensure that all the Invoices lines are enabled as assets are completed and accounted for before being transferred to GL. Make sure that all capital Invoices line distributions are interfaced to Fixed asset module.
For organizations creating leases within Fixed Assets, all leasing invoices must be interfaced to Payables and then paid prior to closing Payables. When closing before Payables prior to Projects, it’s important that invoices and expense reports processing activities are completed and transferred to Projects Cost before closing out Project Accounting. This requires organized coordination efforts from all responsible departments in an organization.
Users will need to close Procurement before closing Inventory. It’s required that all reconciliation and corrections for miscellaneous transaction corrections take place in Inventory. Close Inventory before closing Projects in order to make sure that Project-related inventory transactions are completed and then imported into Projects.
Prior to closing Fixed Assets and Receivables, transfer all relevant information from Project costs to Fixed Assets, and then transfer revenue to Receivables. Finally, the General Ledger module is the last module to close. Once all the subledger accounting entries are accounted for in final status and transferred to General Ledger _and subledger periods are closed_ you can start closing activities for General Ledger.
Common Challenges and Best Practices For ERP Cloud Financials
Beyond conducting period close in this order, there are a few best practices Cloud ERP users should put into practice. These tips purposefully help avoid and mitigate common challenges that each organization has in their monthly financial close. Working with clients across various industries, we find the most common issues include:
- Incomplete transactions by users that need to be addressed before closing processes need to be identified, reporting lacks the ability to show such missing/incomplete transactions
- Unidentified responsible users that lead closing periods for specific Financial module, lack of leadership or not knowledgeable on specific closing processes
- High number of simple user errors require extensive effort to track and fix in a restricted time window
- Critical issues are identified too late in the close process
- Lack of standardization with close process causes miscommunication and confusion in operation and functional users
- Important reports are stored in spreadsheets with restricted access to necessary users
- Excessive post close adjustments due to overly complex accounting systems design
- Ineffective or no post-close review leads to reoccurring, non-resolved issues in future close
- Lack of collaboration and visibility across functional areas
- Lack of knowledge of dependencies between specific areas such as Accounts Payable, Assets, Project Costing, etc.
These challenges can be mitigated if organizations choose to improve their processes in both operational level and technical perspective. Here are some of the most widely-used practices recommended for organizations in their financial close readiness:
- Design systems that allow users to accurately record financial transactions daily
- Designate responsible close-champion team members
- Prepare a detailed close schedule for transaction system readiness (Master Checklist)
- Conduct pre and post close team meetings
- Invest and leverage technology to automate closing processes
- Encourage cross-department collaboration and communication from top leadership level to business/functional users
- Define an Operational Runbook – Runbook is a compilation of routine procedures that the business user community performs on a day-to-day basis.
- A Runbook provides a map of the whole ecosystem including standard processes, integrations and reports. A well-organized Runbook will provide the below benefits:
- Record of dependencies
- Dependencies of all processes are documented and can be referenced as a whole in the Runbook. This will allow system administrators to identify missing pre-requisites in a systematic manner. Cloud ERP Runbook needs to be considered within the context of the wider IT landscape inclusive of feeds from upstream systems and extracts to downstream reporting and post processing platforms.
- Consistency and completeness
- Utilizing a Runbook for common operations will ensure that they are performed in a consistent manner that will drastically cut down on mistakes while also reducing the time spent on the tasks themselves
- System performance
- Runbook design needs to take into account whether tasks are standalone (that cannot or should not be run in parallel with end users); serial (that cannot run at the same time as other tasks) and how long each task takes to complete for average and peak data volumes; objective is to come up with realistic and robust enterprise specific Runbook calendar
- Reduce adverse impact of employee turnover
- A well-documented Runbook will eliminate the dependency on key employees or system integrators and hence has the potential to reduce adverse impact of employee turnover
- Period close
- Probably the most important event in a financial system landscape is successful period close for organizations and the primary objective of the Runbook is to guarantee the accuracy of financial statements and management metrics delivered to executives, business users and ultimately, to financial authorities after timely closure of period
- Record of dependencies
- For Period Close take into account the following considerations
- Make it Goal Oriented
- Ensure that there is Detailed definition of tasks
- Identify ownership for closing processes
- Make the Period Close adaptable to business processes and needs
- Automate processes
With these recommended practices, organizations can better support their staff, streamline their procedure with significantly reduced inefficiencies, and to ultimately deliver success in your Oracle ERP financial close.
For more information on Oracle Cloud ERP and how Elire can assist your organization with all things Cloud, visit our Oracle Cloud Services page here or reach out to our team to set up a time to discuss your organization’s unique needs by emailing [email protected].
About the Experts:
Chau Mai-Paradee serves as Elire’s Cloud ERP Consultant II. Chau is responsible for requirement elicitation and implementation of Oracle ERP Applications for Elire clients. She provides technical support and functional training to all clients to ensure organizations fully utilize their solution offerings.
Octavio Pedregal serves as a Cloud ERP Managing Consultant. He specializes in financial implementations and is responsible for implementing, maintaining, and coordinating with all clients using Oracle ERP Applications. Octavio has a long professional history and experience with a diverse client base. He works with clients to provide appropriate solutions based on their unique situations and needs.