Release Date: 09.20.22 | Author: P.J. Yates

The importance of evaluating fundamental accounting metrics has been emphasized time and again, but how can you properly categorize your key performance indicators so that your F&A teams are prepared for success? At Rynoh, we stre the significance of aligning financial close measures with the overall business strategy to ensure their fit. Leading businesses must concentrate on KPI’s that support the company’s short-, mid-, and long-term goals rather than concentrating on purely organizational statistics.

It is critical to make sure that your metrics encompass the entire closing process, from start to finish. When you’re looking at managing your metrics, begin by considering your financial procedure as a whole. By stepping back and viewing the overall picture of your financial close, you can shift from merely obtaining knowledge that you already know to metrics that begin to reveal what you truly need to know in order for your finances to improve.

HOLISTIC CLOSE KPIS

It’s critical to take a step back and manage your accounting KPI’s from a holistic viewpoint in order for you to avoid any disasters. With less people and money required per month-end close, organizations that employ technology as a tool to enhance performance have been observed to complete the financial conclusion faster with fewer resources and less cash needed each month. This is where profit and loss exposure, process expenses, time to closure, and closing quality come into play.

Profit and Loss Exposure

This metric tells you how much power the organization has over the company’s earnings and risk. To find out how frequent reconciliations affect their risk profile and income, businesses divide the profit or loss from reconciling items based on various factors.

Finance and accounting metric key performance indicator KPIs | A = Profit and Loss Impact divided by Reconciling Items

Process Costs

This accounting measure allows you to monitor the financial close process. Automation technology not only allows businesses to cut costs while improving efficiency, but it also enables Offices of Finance to efficiently scale their operations for large-volume deals.

Finance and accounting metrics key performance indicators | Process Costs B = Process Costs divided by Revenue

Time to Close

This financial KPIs shows how successful an organization is in meeting its daily closing target versus the number of days it takes to complete the task. This metric gives insight into what may be keeping F&A team members from finishing their work on time.

Finance and accounting metrics key performance indicators KPIs | Time to Close C = Actual Days to Close divided by Close Window

Close Quality

The financial close quality metric lets you know how your team is performing by looking at numbers from the previous three formulas. This formula provides an accurate assessment of the financial close process and can help reduce rework and expenses.

Finance and accounting metrics key performance indicators KPIs | Close Quality = 1 divided by A times B times C

CLOSE MONITORING KPIS

Obviously, it is vital for Offices of Finance to have confidence in the management reports they file every period. To achieve this goal, leaders must take charge and analyze close monitoring metrics.

On-Time Critical Path

The number of critical activities completed in the Office of Finance is tracked by this accounting measure. There can be an increase in financial risk profile if too many important operations are not done on time.

Finance and accounting metrics key performance indicators KPI’s | On-Time Critical Path = Critical Activities Performed On Time divided by Total Number of Critical Activities

Comparability

This metric evaluates the completeness of financial close tasks by comparing the number of task types per business unit. Overtime and instances of burnout can be reduced when accounting responsibilities are delegated instead of being shouldered by only a few people.

Finance and accounting metrics key performance indicators KPIs | Comparability = Key Task Type by Business Unit (BU)

Issue Management

The following are some of the most important finance KPIs that evaluate the effectiveness of the close cycle, particularly in terms of how many concerns are raised against the total number of close activities. When organizations expand their operations, it’s essential to keep an eye on any issues that may arise during the closing process — those problems might be a signal that workflow inefficiencies are building up.

Finance and accounting metrics key performance indicators KPI’s | Issue Management = Issues Raised divided by Total Tasks

RECONCILIATION KPIS

Key performance indicators that measure the efficiency of particular procedures are critical in assessing fundamental accounting processes at a detailed level. This allows executives to identify areas for more effectively automating any controls or bottlenecks that may exist.

On-Time Reconciliations

By calculating the number of reconciliations completed on time as a ratio to the total number, financial leaders gain insight into how effective the reconciliation process is.

Finance and accounting metrics key performance indicators KPI’s | On-time Reconciliations = Number of On-Time Reconciliations divided by Total Number of Reconciliations

Number of Aging Items

In this video, we look at how data from internal and external sources are used to calculate average project duration. We will also look at several methods for determining the time it takes for a project to fulfill its objectives.

Finance and accounting metrics key performance indicators KPI’s | Number of Aging Items = Number of Items by Bands (30, 60, 90 days)

Automated Reconciliations

This measure shows the percentage of automated and controlled reconciliations to all reconciliations, revealing reconciliation efficiency, much like the proportion of on-time vs total reconciliations. The more automated reconciliations are accomplished, the better the process is.

Finance and accounting metrics key performance indicators KPI’s | Automated Reconciliations = Number of Automated Reconciliations divided by Total Number of Reconciliations

COMPLIANCE KPIS

Last but not least, there are accounting KPIs relevant to compliance. These metrics will examine the efficacy of company and regulatory compliance measures across the company. If an organization’s internal controls aren’t properly addressed, these KPI’s will point out the need for a robust compliance framework that corrects problems before financial reporting is finished.

Cost of Compliance

The total cost of compliance for an organization is measured via this score. Organizations may assess their control framework and identify where improvements are required by combining both the expenses of controls and the costs of adverse events.

Finance and accounting metrics key performance indicators KPI’s | Cost of Compliance = Cost of Controls plus Cost of Events

Issue Time to Resolution

Finance executives can evaluate the problem’s time to resolution to determine how quickly each financial closure activity is completed. Calculating the days from identification to remedy helps assess any bottlenecks or delays in the closing process.

Finance and accounting metrics key performance indicators KPI’s | Issue Time to Remediation = Days from Identification to Remediation

Test Rate

Lastly, it is key to measure the control test rate in order to discern the effectiveness of your controls framework. The test rate can be determined by dividing number of control tests by the total number of controls. Doing this also helps organizations limit excess testing and keep tabs on controls that exist among different business units, risks and locations.

Finance and accounting metrics key performance indicators KPI’s | Test Rate = Number of Control Tests divided by Total Controls

By evaluating and calculating these thirteen finance and accounting metrics, Offices of Finance can assess their close processes with clear data. These key performance indicators will also give them insight into which areas need improvement over time and which areas of the financial close are already optimized and streamlined.