As artificial intelligence (AI) evolves, organizations streamline staffing and workloads continue to grow, accounting and finance teams may find themselves rushing through day-to-day responsibilities simply to keep up. When completing the monthly close becomes a race to the finish, it can be difficult to step back and critically review the financial statements before sharing them with leadership and other stakeholders.
Basic financial analytics can make that self-review more effective.
This doesn’t require complex financial ratios or sophisticated analysis. By establishing expectations and comparing them with actual results, you can identify unusual trends or relationships that may point to an error, signal potential risk, or warrant additional investigation. More importantly, you can incorporate this review into your monthly close rather than waiting until quarter-end or year-end to take a closer look.
Why Include Financial Analytics in Your Monthly Close?
Whether you’re reviewing financial statements someone else prepared or checking your own work, financial analytics can help you assess whether the numbers make sense based on what you know about your organization, especially when you’re in the day-to-day weeds of preparing the financials and completing the monthly close.
The key is to establish your expectations before diving into the financial statements.
Consider what you expect the monthly and year-to-date results to show based on your organization’s operations and activity. Much like a scientist forming a hypothesis before reviewing the data, establish what you expect the results to show before testing those expectations against the financial statements. When actual results don’t align with that working hypothesis, determine why.
A difference won’t always signal an error. But an unexpected result gives you a reason to ask questions, investigate the underlying activity and determine whether a correction is necessary.
Start With What You Know About Your Organization
Before reviewing the numbers, consider the business factors that should shape financial results, including your organization’s:
- Business lines, revenue sources and key expenses, as well as the timing of related revenue and expenditures
- Significant or unusual activity and how you expect it to affect the financial statements
- Changes in personnel or turnover during the year
- Current budget, forecasts, projections or strategic plans
- Chart of accounts and financial statement structure
Establishing these expectations gives you a baseline for evaluating actual results and identifying activity that deserves a closer look.
Five Ways to Put Financial Analytics Into Practice
Review Your Trial Balance
Start with the basics. Review account balances and determine whether each has the expected debit or credit balance based on the account type and any known contra accounts.
When a balance doesn’t align with expectations, research the underlying activity to determine whether you’ve found an error that requires correction.
Look for Month-to-Month Changes
For interim financial periods, consider reviewing your statement of activities with each month presented in a separate column. This format can make significant changes in revenue and expenses easier to spot throughout the year.
Then compare those changes with your expectations.
For example, you may expect rent expense to remain relatively consistent from month to month. You may expect personnel costs to increase in October because a new employee started.
If actual results differ from those expectations, investigate why. A transaction may be missing or classified incorrectly, or there may be a valid business explanation that should be documented.
Compare Current Results With the Prior Year
Consider reviewing comparative statements of financial position and activities, then calculate both the dollar and percentage variance for relevant accounts. You’ll also need an internal threshold for determining which variances warrant additional investigation unless management has already established a financial statement materiality framework.
Consider quantitative and qualitative factors when establishing that threshold. Depending on your organization’s circumstances, a significant dollar change or percentage change could warrant attention even if the variance doesn’t meet both measures.
The threshold is a starting point, not a substitute for judgment. Compare each result with what you expected based on the organization’s activity.
Review Related Accounts Together
Individual account balances only tell part of the story. Looking at related accounts across financial statements and supporting schedules can provide additional context.
For example, consider reviewing a roll-forward schedule of fixed-asset gross costs and accumulated depreciation. You can then reconcile depreciation expense and disposal gains or losses from those schedules to the financial statements.
Use the same approach when reviewing other accounts with logical financial relationships. The goal is to determine whether the pieces tell a consistent story.
Investigate Results That Don’t Match Expectations
Material variances aren’t the only items that may require attention. An account that hasn’t changed can be just as meaningful when you expect it to move.
Suppose your organization purchases new furniture during the year. You would expect the gross furniture and fixtures asset balance to increase. If the balance remains unchanged, investigate the transaction. The purchase may have been recorded as an expense rather than capitalized.
This expectation-based approach can help you find issues that a variance threshold alone may not reveal.
Document What You Find
Performing your analytical review in Excel can make your conclusions easier to document and revisit. You can add explanations for significant changes, link related amounts to supporting reports and preserve calculations used during the review.
Good documentation also makes it easier to communicate what you find. Instead of simply presenting a variance, explain the underlying activity, identify items requiring additional research, and develop a clearer narrative for leadership and other financial statement users.
Turn Monthly Review Into Actionable Insight
A consistent analytical review can provide three important benefits:
Identify potential errors earlier
Investigating unexpected results before issuing financial statements gives your team an opportunity to identify and correct potential errors.
Prepare more effectively for financial discussions
Documented analysis can help develop monthly financial narratives and highlight key points for leadership and other financial statement users.
Maintain well-supported financial information
Retain documentation that substantiates explanations for unexpected results. Analytical review complements, but doesn’t replace, account reconciliations, supporting schedules, review evidence, or other internal controls.
Using financial analytics doesn’t have to add significant complexity to your monthly close. Build a focused analytical review into your existing process and use what you already know about your organization to evaluate whether the results make sense.
Over time, that discipline can help your team identify unexpected activity earlier, communicate the story behind the numbers more clearly, and prepare for presentations and questions from leadership and other financial statement users throughout the year. Connect with a CBIZ professional to discuss opportunities to strengthen your accounting and financial reporting processes.
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