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UHY LLP Michigan Practice
VOLUME 8: ISSUE 1
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ARCHIVE
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NORTH AMERICAN AUTOMOTIVE PRODUCTION FORECAST QUARTERLY SUMMARY
Summary includes economic outlook, light vehicle sales outlook, current production drivers, production capacity and long-term trend, model launches and investments.
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ACCELERATING THE MONTHLY FINANCIAL CLOSE PROCESS
Have you ever asked yourself, "Why does closing the books take so long?" If so, take heart, you are not alone. Closing the books on a timely and accurate basis is important to making key business decisions and ensuring the financial health of the enterprise. A prompt accounting close also reduces the risk that fraudulent behavior can occur and go undetected. CFOs acknowledge the need for faster close times to address these challenges. Fortunately, with the right approach, it is possible to improve the timeliness of the monthly close at most companies. To do so, we recommend clients review their accounting processes and procedures using the "Standardize, Streamline and Simplify" strategy described below.
STANDARDIZE
An effective and efficient close begins with basic organization and expectation setting, including creating reasonable standardization of inputs, processes, outputs and timetables. Creating standards for documenting and supporting journal entries, including the use of standard reference numbers for recurring entries, promotes consistency and completeness, which can accelerate the close by reducing review times and rework. Maintaining centralized repositories for electronic or hardcopy supporting documents can reduce the time needed to locate information and minimizes the risk that incorrect or outdated information is used.
A documented closing calendar can be used to ensure financial accounting activities are properly sequenced and to set expectations regarding the time allowed to complete them. The closing calendar establishes and communicates cut-off dates, reducing the risk of errors and enabling accountants to work efficiently to known deadlines. A closing checklist can also facilitate a timelier close by identifying specific month-end accounting tasks, the individuals responsible for completing them, and when items are due. As a logical extension of the closing calendar, the checklist should be used to monitor the status of the monthly close and to ensure that all activities are completed. Together, the closing calendar and closing checklist should reflect the determination of how much time is appropriate for completing the fundamental accounting work that will ensure the accuracy and reliability of the financial statements and related analyses.
STREAMLINE
Streamlining is the process of evaluating and reorganizing activities and work methods to increase the processing speed of a system and optimize outputs. Streamlining includes the identification of essential, beneficial, low value and redundant activities, process bottlenecks, and alternatives to existing work methods.
Reviewing activities and work methods employed during the monthly close is a great exercise for any company wanting to improve their closing process. Some useful steps are: Identify WHAT is done (task, frequency, time required monthly); Document HOW it is done (personnel, procedures or steps in process, technology used, and samples of documents used in and produced by the process); and Identify the reasons WHY it is done (benefits provided, recipients of outputs, etc.). Next, determine whether the tasks are essential to the close, performed at the proper time, and performed in an optimal manner. Challenge the process owners to think outside of the box since they are the most familiar with their responsibilities. They usually have insights concerning the quality of inputs, processes and outputs that can help identify unnecessary tasks, increase efficiency and improve overall work satisfaction.
Reviewing how accounting tasks are performed often identifies a significant reliance on manual processes. The delays caused by manual processes can make it difficult for accountants to assess performance and risk, ensure accuracy, and support effective decision-making. Respondents to a 2015 survey conducted by Clearwater Analytic cited reliance on manual processes as the most significant challenge to accelerating the monthly close.  Fortunately, in today's technology-rich environment most routine accounting activities can be automated. The first step is to understand the full capabilities of the existing systems and to determine if there are features that can accelerate the close that are not being used. If the ability to enhance the existing systems is limited, financial reporting processes may be automated using additional software tools. Quite often, accounting activities can be automated using Microsoft Excel and the creativity and knowledge of the process owner.
Excel's pivot table functionality allows users to summarize large amounts of data quickly and present it in customized formats for efficient review and analysis. Microsoft's e-mail program, Outlook, can automatically generate messages to recipients to notify them that reports are available for review. Similarly, Excel's macro functionality allows repetitive processes to be automated with a click of a button. All of these examples can be developed using Microsoft Office applications; no additional investment in software is necessary.
UHY has helped clients develop pivot tables and macros that automate account roll-forwards and calculate sales commissions. For example, we often find accountants at client companies manually download general ledger reports and then manually compare them to other reports to prepare a roll-forward schedule for reconciliation purposes. These processes can easily be automated by using Task Scheduler to automatically run the reports and export the data to a single file. This new file will have imbedded macros that retrieve and summarize the appropriate data, allowing the process owner to spend time analyzing the report rather than compiling the data.
Modifying the sequence of activities, such as performing certain tasks during the month rather than during the close, can improve the close process as well. In a recent study by The Hackett Group, "The Financial Close Poll," 60 percent of top performers had moved accounting activities out of the critical path to a high or medium extent versus only 43 percent of their peers. Common activities moved included cash, fixed asset and other balance sheet reconciliations. Changing when reconciliations were performed allowed exceptions to be identified and resolved prior to month-end, accelerating the close.
The Hackett Group's study also identified conducting a close preview meeting as the practice with the most significant impact on accelerating the close. A brief close preview meeting can be used to communicate events and issues that may impact business or financial performance or the timing of the close. A general discussion of the current period's sales and production volumes as well as spending on capital spending projects or other strategic initiatives can get the accounting team grounded in matters that should be expected to appear in the financial statements before beginning the close. The fastest closing companies in the study also had process improvement teams that met regularly to streamline the monthly close.
SIMPLIFY
Simplification is driven by the adoption of cost-effective accounting policies, the design of the accounting system including the chart of accounts and management reporting structures, and the elimination of non-value added accounting work. Striving to maintain an appropriate level of simplicity and avoiding unnecessary complexity can promote efficient accounting processes and improve the accuracy and timeliness of financial reporting. For example, using standard costs and cycle counts can simplify the accounting for inventory and cost of sales. Similarly, estimating bad debt expense using the percent of sales method is an efficient way to provide for uncollectible accounts.
The use of modern business intelligence tools for customer and product profitability analysis allows companies to adopt a more compact chart of accounts. General ledgers no longer have to have a myriad of revenue and cost of sales accounts dedicated to specific product groups or distribution channels since such details can be pulled from other data sources. Similarly, establishing reasonable thresholds for responsibility accounting can bring clarity to management reporting while enabling a faster and more accurate close.
CONCLUSION
In summary, the ability to close the books quickly is important to helping manufacturing companies improve operating performance and maintain their financial health. CFOs and accountants understand the importance of an effective and efficient monthly close and will seek to improve processes that perform poorly. Using the "Standardize, Streamline and Simplify" strategy described above, accounting professionals can reduce the time spent on closing activities while improving the accuracy, reliability and availability of the financial information they produce.
For more information or questions on this topic, please contact a member of the firm's National Manufacturing Practice in Detroit 313 964 1040, Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040, or visit us on the web at www.uhy-us.com.
By Jody Lurk, Senior Manager and Bill Slaughter, Senior Manager
(St. Louis, MO)
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DIVERSITY AND INCLUSION
A diverse, inclusive and engaged workplace provides the best environment to ignite innovation and accelerate global growth in all industries including manufacturing. While machines can produce goods efficiently and quickly, people are still the most important asset of any company. To succeed in the increasingly global marketplace, companies must make the most of the full range of their staff. Successful companies must attract and retain people with the right skills and best minds.
From Apple to Xerox Corporation, Boeing to General Motors, large and small companies are increasingly focusing on making diversity a priority. Additionally, many companies are choosing to do business with others who make diversity a priority. With demographic shifts, advances in technology and communications, and globalization, diversity is quickly becoming a driver of growth around the world.
Recently, the United States Census Bureau issued a report of an in-depth study they performed, as they look forward and project population from 2014 to 2060. The results are summarized as follows:
- The US population is expected to grow more slowly in future decades than it did in the previous century. Nonetheless, the total population of 319 million in 2014 is projected to reach the 400 million threshold in 2051 and 417 million in 2060.
- Around the time the 2020 Census is conducted, more than half of the nation's children are expected to be part of a minority race or ethnic group. This proportion is expected to continue to grow so that by 2060, just 36 percent of all children (people under age 18) will be single-race non-Hispanic white, compared with 52 percent today.
- The US population as a whole is expected to follow a similar trend, becoming majority-minority in 2044. The minority population is projected to rise to 56 percent of the total in 2060, compared with 38 percent in 2014.
- While one milestone would be reached by the 2020 Census, another will be achieved by the 2030 Census: all baby boomers will have reached age 65 or older (this will actually occur in 2029). Consequently, in that year, one-in-five Americans would be 65 or older, up from one in seven in 2014.
- By 2060, the nation's foreign-born population would reach nearly 19 percent of the total population, up from 13 percent in 2014.
While many will agree there is a strong business case for having a diverse employee population, many are also quick to identify barriers to a diverse workplace. For example:
Myth 1: The pipeline of potential employees to select from is not diverse.
Some company leaders say they would love to hire more minorities but can't find them. The pipeline is certainly a concern and many organizations have been focused on increasing the pipeline. For example, on Nov. 23, 1993, the National Science and Technology Council (NSTC) was established by Executive Order. The NSTC is organized into four primary committees: Science, Technology, Engineering, and Mathematics (STEM) Education. The STEM program encourages students throughout their education to consider careers in these four areas. Getting students interested in STEM at an early age is extremely helpful in developing the pipeline. The pipeline for talent in the manufacturing industry stands to reap the largest benefits of the STEM program.
Employers in the manufacturing industry are reaching out to local colleges and universities in an attempt to increase the pipeline of candidates. Employers are discussing the specific educational needs of their industry in order to influence the course work of the students. Institutions of higher education are generally open to this discussion, as one of their goals is to have a high placement percentage after graduation.
With an enhanced pipeline, diversity is bound to be abundant; it is just a matter of going to the universities and seeking out the best and the brightest.
Myth 2: There is no real return on investment in diversity and inclusion.
The reality is that inclusion and exclusion are key components of a company's culture-the company's personality. If a workforce feels comfortable in expressing their thoughts and believes their ideas are taken into consideration during the decision process, employees will obtain a sense of achievement and pride in their work. This company culture is now directly related to employee performance, in that the employee will not be afraid to express their creative thoughts and ideas. Subsequently, increased employee performance is directly linked to company performance. Employees who are thinking creatively and intimately involved will be encouraged to reduce cost, develop new products, and take ownership in increasing the profitability of the company.
Furthermore, customers are asking companies to demonstrate their commitment to diversity and inclusion prior to awarding contracts. For example, certain government contracts require the use of minorities. Companies with diversity are therefore given a priority on being awarded those contracts.
Myth 3: Diversity and inclusion requires too much effort, and we don't have the resources.
Yes, it's hard, but anything worth doing is difficult. To get started, take an inventory of your workforce. It is possible that you have naturally achieved a good degree of diversity in your workplace. Secondly, consider incorporating diversity and inclusion into your existing recruitment and retention process. By doing so, no additional resources will be required. Finally, keep in mind, any incremental change is a meaningful change. Once the ball starts rolling, achieving diversity will become second nature.
Myth 4: It's difficult to compete with large employer recruiting of diverse talent.
It's a common refrain, large companies snap up all the diverse candidates. While part of this is true, large companies do hire a significant amount of diverse talent, not all talented potential employees want to work at large companies. There are significant benefits related to working in a small, midsize, or regional company. These benefits will appeal to many qualified individuals. Large companies work hard at developing a diversified workforce and are successful because of the hard work. This investment by the large companies in promoting diversity typically also has many downstream benefits for all companies.
In summary, many successful companies have identified the benefits diversity and inclusion has brought to their companies. Consider taking an inventory of your workforce, evaluate your pipeline of potential talent, and incorporate diversity and inclusion into your recruitment process.
By F. Michael Zovistoski, Partner (Albany, NY)
National Manufacturing Practice
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INDUSTRY INSIGHT
UHY LLP recognizes that manufacturing companies require their auditor, tax specialists and business advisors to add value to financial reporting activities. That is why we combine the strength of business and financial expertise with a hands-on, "shop floor" approach to solving complex business decisions in these key segments:
- Aerospace & Defense
- Distribution
- Automotive Suppliers
- Industrial Manufacturing
- Consumer Products
Our professionals are leaders in the industry and take the steps necessary to ensure our client's future success by identifying and addressing new trends, accounting requirements and regulations.
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Our firm provides the information in this newsletter as tax information and general business or economic information or analysis for educational purposes, and none of the information contained herein is intended to serve as a solicitation of any service or product. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of "UHY Advisors." UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. "UHY" is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.
�2013 UHY LLP. All rights reserved. [0613]
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