WHY ACCOUNTING RESULTS ARE GARBAGE

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WHAT IS A HARD CLOSE

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a hard close in accounting is - some would say a bag of cheap tricks (to which I do not agree!) - to help with super fast closing of the books while still diligently performing all the required accounting checks

to see why anyone would want this, let's go back one step

closing the books is an accounting term. the accounting system is the bedrock on which the financial information of a business is built. it has this function because of all the checks and balances that are included. the process of performing the checks and balances is called 'closing the books' and only when the books have been properly closed we are sure that the accounting numbers are correct

in any business the books are closed periodically in accordance with the accounting procedures. closes can be for example daily, monthly, quarterly, annually and the work performed can very from basic checks to very detailed investigations depending on business requirements

other numbers and reports like for example management's discussion of the financial results and investor information need to be backed up by the accounting system. when this information is not based on properly closed out accounting information - there is a risk that the information is wrong

closing the books takes time. it takes even more time when differences are found that cannot be reconciled. in which case investigations are necessary

accounting by its nature is 'after the fact' and despite advances in technology is still a slow process

so if you are a fast moving business you have an issue here. you want information that you can use quickly (cannot wait for 3 months after the year has ended to know what the profits were). however if you take shortcuts on the accounting system you risk getting your information wrong

the answer to this is the 'hard close'. hard close stands for a way of thinking and if necessary adapting the accounting procedures to advance the work of performing the accounting checks and balances in time, that is to pull those activities forward as much as possible

as an example take a business with a year-end closing date of December 31st. it could already take a month to collect all backup documentation that is needed for the closing. then it could take another month to complete the actual closing activity. after that the numbers are analysed, discussed and presented - and this could take another month. before audited numbers can be presented - it could be four months after the closing date

in a hard close approach one could take November 30th to close the books internally. do all the work on the numbers of November 30th, make sure these numbers are rock solid - and then roll the transactions of December forward on those numbers. besides moving the internal closing date forward, there would also be a review of  all accounting procedures and the tools that are used to look for time savings. I mean there is not one way of doing a hard close, it is a way of thinking - using the opportunities and the situation. rather than sit and wait and taking the accounting procedures as static, the hard close is a pro-active approach to achieve a target: getting the numbers confirmed earlier


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