Being one of the most significant accounting processes, the financial close process needs to be dynamic. It needs to constantly evolve along with the evolution of the business world in order to allow companies to present their financial position accurately.
The evolution and transformation of any industry or process today are almost always characterized by advanced technologies. The same is the case with the financial close process. It’s improving constantly thanks to the introduction of new technologies.
Here are the key trends that will dictate the financial close process in 2025.
The Future of Financial Close
- AI for autonomous finance: The finance industry is already using AI to automate processes such as account reconciliation, journal posting, and intercompany accounts management. Automation of these processes in turn is resulting in a more accurate and faster financial close.
What we need in the future in terms of leveraging AI’s full potential is for CFOs to increase trust and reliance on the technology for decision-making as well. AI, as we have all been witnessing, is continuously growing and adapting to the needs of the users. The technology has the ability to drive strategic decision-making with minimal human intervention. So far, the finance and accounting industry has realized that advanced financial close software can help businesses enhance efficiency and reduce time to close by almost 30%.
- Cloud-based accounting systems: Despite the emergence of a wide variety of technologies, the financial sector, and the financial close process by extension, is still heavily dependent on legacy systems.
This is exactly the kind of problem cloud-based accounting systems can solve for the finance and accounting industry. Cloud-based accounting systems provide a scalable and flexible infrastructure to store and process large volumes of financial data. As the business grows, the number of transactions grow as well, which means companies need scalable solutions for an efficient financial close.
It’s understandable that the move towards a complete cloud infrastructure is not possible on the go. However, businesses can certainly look into combining on-cloud and on-premise solutions to ease the transition. Doing so will let companies take a step forward towards an autonomous financial model.
- Enhanced use of data and predictive analytics: The scope of AI in account reconciliation is not only limited to automation. However, at this time, AI is majorly being used for automation in the accounting industry.
CFOs need to take charge in this case and lead the way forward in investigating the usage of AI for predictive analytics as well. To automate accounting processes, AI is fed all the financial data. AI can then use the same data and generate strategic insights as well which will help companies constantly improve their financial close process. Finance professionals can further identify any inefficiencies in their accounting processes, cost-saving opportunities, rand isk-prone parts of the financial close process.
AI is capable of generating strategic insights from the reconciliation data fed to it.
- Increased emphasis on compliance and transparency: Adherence to regulatory requirements has always been a key part of the financial close process. However, now, new parameters for transparency and compliance are coming into focus, owing to which companies have to be more vigilant in adhering to accounting laws and regulations. The room for errors and misstatements have essentially been eliminated, as public companies are being held more accountable. In this case, as well, automation will be at the forefront, enabling smooth and accurate financial reporting.
- Focus on Environmental, Social, and Governance (ESG) reporting: Due to rapid climate change, one of the emerging trends in the accounting industry is ESG reporting. The concern regarding the environment is increasing and corporations have become infamous for their large carbon footprints. Due to this, companies are now being held responsible and are required to show their sustainability and ethical practices in their financial reports.
- Use of blockchain and cryptocurrencies: Blockchain is essentially the next step for CFOs to achieve end-to-end financial autonomy. The technology has immense potential to enhance transparency, streamline processes by removing intermediaries, and increase security when it comes to financial transactions and data.
With the implementation of blockchain technology, companies can further improve financial reporting as the technology provides a single source of truth for all financial data. A key element of this technology is a ‘disrupted ledger’, which allows for more transparency and immutability when it comes to recording transactions.
The unprecedented nature of the business industry especially makes the use of blockchain technology all the more important. Businesses can assess their financial position and dynamically make decisions as their current and future needs change.
Conclusion
As we can see, the financial close process will be dictated by increased automation with a focus on reducing errors by using technologies like blockchain and predictive analytics. The focus on compliance will increase in addition to the rising focus on ESG reporting.
