Closing the books at the end of each month is a critical task for multinational companies (MNCs) operating in India. It involves finalizing all financial transactions, ensuring compliance with regulatory standards, and preparing accurate financial reports. However, this process is fraught with challenges that can cause delays and inaccuracies. Understanding these challenges and implementing effective strategies can help MNCs streamline their monthly closures and improve financial reporting.
According to a survey by PwC, 65% of MNCs in India cite regulatory compliance as a significant challenge in financial reporting. A report by EY indicates that 58% of companies in India still rely heavily on manual processes for financial reporting.The Indian staffing firm TeamLease found that 48% of finance departments in MNCs face talent shortages, impacting their ability to meet month-end closing deadlines.
Challenges Faced by MNCs in India
Regulatory Complexity and Documentation
India’s regulatory environment is complex, with numerous laws and regulations governing business operations. MNCs must navigate through a maze of compliance requirements, including:
- Goods and Services Tax (GST): The introduction of GST has simplified the tax structure but also brought new compliance challenges. Companies must ensure accurate GST filings and manage various state-specific regulations.
- Company Law Compliance: The Companies Act, 2013 mandates regular filing of financial statements, annual returns, and adherence to corporate governance standards. This requires meticulous documentation and timely submissions.
- Foreign Exchange Regulations: MNCs need to comply with the Foreign Exchange Management Act (FEMA) regulations, which govern foreign investments and remittances.
Disparate Systems Causing Bottlenecks
Many MNCs operate with legacy Enterprise Resource Planning (ERP) systems or multiple data processing platforms. These systems often function in isolation, leading to bottlenecks during the month-end close. Collecting information from various sources, such as different departments and platforms, can cause delays and inconsistencies. For example, an accounting team may need to reconcile data from sales, inventory, and payroll systems, each with its own reporting format and timeline.
Manual Processes Prone to Errors
Manual processes remain prevalent in many Indian subsidiaries of MNCs. High-pressure environments during month-end closings can lead to errors in data entry, mismatched spreadsheets, and inaccurate financial statements. When teams rush to meet deadlines, the likelihood of mistakes increases, resulting in rework and delays. These manual tasks, although seemingly straightforward, can create significant challenges if not completed accurately.
Time Constraints and Talent Shortages
Time constraints are a common issue during month-end closings. Finance departments often face a shortage of skilled personnel to manage the workload efficiently. The lack of time and talent can lead to insufficient review and verification of financial data, increasing the risk of errors. With tight deadlines, it becomes challenging to double-check all entries and ensure the accuracy of financial reports.
Institutional Knowledge Gaps
A significant portion of the month-end closing processes resides in the institutional knowledge of key personnel. According to estimates, as much as 71% of these processes are undocumented and known only to the individuals performing them. This reliance on specific individuals can slow down the closing process, especially if they are unavailable due to illness or other reasons. The absence of standardized procedures exacerbates the issue, making it difficult to achieve a smooth and timely close.
How to Overcome Month-End Closing Challenges
Consolidate Accounting Systems
Streamlining accounting systems can help eliminate bottlenecks. By adopting a unified ERP system and standardizing financial data definitions, companies can reduce the time required to gather and reconcile information. This consolidation enables a smoother flow of data and improves the efficiency of the closing process.
Automate Manual Processes
Automation can significantly reduce errors and speed up the month-end close. Implementing accounting software that automates data entry, reconciliation, and reporting tasks can free up valuable time for finance teams. Automation ensures consistency and accuracy, minimizing the need for manual intervention and reducing the risk of errors.
Establish a Pre-Close Checklist
Creating a pre-close checklist can help finance teams stay organized and manage their workload effectively. This checklist should include tasks that can be completed throughout the month, rather than leaving everything for the final week. By breaking down the closing process into manageable steps, companies can alleviate time pressures and ensure a more thorough review of financial data.
Capture Institutional Knowledge
Documenting accounting and closing processes is essential to prevent knowledge gaps. Companies should invest time in capturing institutional knowledge and creating detailed process manuals. This documentation facilitates training and ensures continuity in case of personnel changes. It also enables the implementation of internal controls and segregation of duties, reducing the risk of errors and fraud.
Outsourcing as a Solution
Outsourcing the month-end closing process can be an effective solution for MNCs struggling with these challenges. Outsourcing allows companies to leverage external expertise and resources, ensuring a smooth and timely close. By partnering with a reliable accounting service provider like Finsmart Accounting, MNCs can benefit from:
- Regulatory Compliance: Finsmart Accounting has a deep understanding of Indian regulations and ensures compliance with all statutory requirements.
- Automation and Technology: Finsmart Accounting leverages advanced accounting software to automate processes and improve accuracy.
- Skilled Personnel: Finsmart Accounting provides access to a pool of trained professionals who can handle the month-end closing efficiently, filling any talent gaps in the finance department.
Call to Action
Struggling with the complexities of month-end closing in India? Partner with Finsmart Accounting to streamline your processes, ensure compliance, and improve financial reporting accuracy. Our team of experts is equipped with the latest technology and regulatory knowledge to help you close the books without the usual stress and chaos. Contact Finsmart Accounting today to learn more about how we can support your month-end closing needs.
In conclusion, the monthly closure of books for MNCs in India presents several challenges, from regulatory complexities to manual processes and talent shortages. By consolidating systems, automating tasks, documenting processes, and considering outsourcing, companies can overcome these challenges and achieve a smoother, more efficient month-end close. Finsmart Accounting is here to help you navigate these challenges and ensure accurate and timely financial reporting.
India Business Head
Mrs. Dipali Phadke is a qualified Chartered Accountant with more than 20+ years of experience in the field of Accounting, Taxation and Payroll. She is the backbone of Company’s Operations and heads India Business at Finsmart Accounting
