The close process is often a long process in any company and even some companies view it as a necessary evil. However, the process is vital because it helps in maintaining control over the finances and also helps in making sure that managers make the right and timely decisions. Shortening the close process is vital in making sure that timely and accurate decisions are made.
Things That Could Help Shorten the Close Process
There are various things that new controllers can do to shorten the close period such as breaking the close process into various pieces that are more manageable. It will make the process easier to start and easier to finish.
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The second thing that can be used to shorten the close period is performing a risk analysis. The analysis will help in identifying lower-risk areas of processes and financial statements that do not need to be perfect for every close, thus reducing the amount of work needed to be done. The third thing is taking advantage of technology, more specifically of simple applications like QuickBooks and Excel that can be implemented quickly, and which are more efficient. The use of technology also helps in data sharing and reporting, and results in better data and saves time and money.
Adding the reconciliation automation can give the new controller the opportunity to shorten the close process. In addition, it can help in making sure that the financial information is accurate.
Documents That Are Needed To Be Filed Under the SEC
The government of the United States provides investors with the opportunity to get a view of the performance of the company through a set of documents that are submitted to the U.S. Securities and Exchange Commission (SEC).
One form that is often filed by public companies includes the 10-K report which provides investors with a detailed analysis of the organization. It has more information than an annual report and companies are expected to file them within 90 days after the end of the fiscal year, on an annual basis. The 10-K contains various parts that include the business summary which provides a description of the operations of the company, its history, and business segments. It also contains the discussion and analysis of the management that provides a good explanation of the financial and operations outlook for the company. In addition, it contains the financial statements, mainly the income statement, balance sheet, and the cash flow statement. Other sections discuss the legal proceedings and management team of the company.
The next form that public companies are expected to file includes 10-Q which is the truncated version of the 10-K. The report is often provided within the 45 days of the end of every first three quarters of the fiscal year of the company. It provides the details of the latest developments of the company and also provides a preview of the direction that it intends to take. Its main difference of the report from the 10-K include the unaudited financial statements and also the reports that are less detailed.
Methods That Can Be Used By the Controller to Reduce Costs
Cost control is vital for any organization because it means that the company would get more profits. There are various methods that are used by controllers to reduce costs after there has been an understanding of the various costs and how the cost reduction process would affect other costs.
Direct labor is considered to be the single greatest expense that companies incur. In some cases, it is the hardest expense to change because of the consequences of change on the people. However, labor saving is a method that can be used to reduce costs ( Davis, 2012) . The advantage of this strategy is that the company can make big savings. The disadvantage of this strategy is that a lower number of employees might negatively affect the quality of the product as there might be motivational changes resulting in more work being done by each employee.
Another method that can be used by the controller in reducing cost is inventory management through the just-in-time delivery practices. In this case, the stock often arrives from the supplier and the moves directly to manufacturing. The advantage of this method is that the company can save on the costs of maintaining warehouses. In addition, it reduces the amount of time that the operating capital is tied up in stock. However, the disadvantage of the method is that there is the risk of delays from the supplier which can lead to delays in supplying goods and services.
Acquisition and Financing Options
There are several options that the company can use to acquire the equipment including buying the equipment which is considered to be the straightforward option. The option would give the company ownership of the equipment from the legal standpoint. The other acquisition option is leasing the equipment which will not provide the company with its ownership. However, it will provide the business with other benefits such as the right to use the equipment. A third option is a form of transaction that is known as the finance lease. It is a lease transaction that is considered to be a triangle among parties that include the leasing company, the vendor, and the company. In this case, the company will pick the equipment and the leasing company purchases it from the vendor. The company would make regular payments depending on the lease agreement.
To ensure the success of all the acquisition options, it is vital for the company to finance them. There are various options for financing the equipment that includes equity financing that includes raising capital by selling the equity of the company to shareholders. Equity is a less expensive form of funding as the company does not have to pay expensive interests as is in the case of debt financing.
The next form of financing is debt financing which involves taking debt. However, the company would need to pay back the debt and the interests that are charged on the loan. More specifically, capital equipment loans are loans that can be made by the financing companies and banks to provide the funds needed to acquire the capital equipment. In this case, the loan is collateralized where the equipment can be taken by the financing company or bank if the company defaults on the loan. In other words, the equipment is the security for the company’s loan.
Dividend Payment
The dividend is considered to be important to shareholders because it is the portion of the profit that the company makes and which is often paid to the shareholders. The main reason why shareholders invest in companies is to get returns on their investments in terms of dividend payment that come from the profits. However, not all public companies pay a dividend to the shareholders because of various reasons.
In the case study, Company X may not be paying a dividend because it feels that it is better to put the profits of the company to work like taking advantages of growth opportunities so that the company can make more profits and be more valuable ( Gilbertson, 2013) . Expansion process can be very costly for the company and thus might decide to use its profits to support the process. The company might also be facing financial difficulties that might not allow it to pay the dividend.
If the company decides to offer the dividend , the advantage of the process will be that the company will appear to be more attractive to investors. However, such payouts would hinder the company from making any expansion process as there will be no money to use unless it uses debt financing which is risky.
Liquidity Measures
Liquidity measures are those that try to analyze the ability of the company to pay off the short-term debt obligations.
Ratios
Liquidity rations aim at determining the ability of the company to make its debt obligations. It is often done by looking at the liquid assets of the business.
Items included in an RFP for a Financial System Implementation
The two main items that are included in an RFP for the financial systems implementation include the contract terms and the bidding process.
Temporary and Permanent Tax Differences
The following are example of temporary and permanent tax differences;
Meals – Permanent tax differences
Accruals- temporary tax differences
Entertainment– Permanent tax differences
Prepaid - temporary tax differences
Penalties– Permanent tax differences
Loan Covenant
A Loan covenant is contract between the borrower and the lender which spell out the terms of the borrower and the lender. The contract is also a binding agreement between the two parties and its meant to reduce the risk of defaulting to pay the loan. In addition a loan covenant limits the freedom of the borrower to get more debts, pay bonuses, or increase the salaries.
Conclusion
From the analysis above, it is evident that the strategies of reducing the close process are vital in ensuring timely and efficient decision making. Some of the documents that company need to file under the SEC include 10-Q and 10-K documents. From the analysis of the questions, there are various methods that are used by controllers to reduce costs after there has been an understanding of the various costs and how the cost reduction process would affect other costs. There are several options that the company can use to acquire the equipment including buying the equipment which is considered to be the straightforward option and leasing it. They can be financed through debt and equity financing.
References
Gilbertson, C. B., & Lehman, M. W. (2013). Fundamentals of accounting . Mason, Ohio: South-Western.
Davis, C. E., & Davis, E. (2012). Managerial accounting . Hoboken, N.J: John Wiley & Sons.
