Tips To Shorten The Close Process And Insights On SEC Filings, Cost Reduction Methods, Equipment Acquisition Options, And Dividend Decisions

Shortening the Close Process

As a new controller, few steps can be taken to shorten the month-end process. They are:-

Breaking down the close process into pieces will make it more manageable and easier to work on. One way of doing this is viewing the balance sheet line by line and finding the ways to do the work faster.

Quarterly evaluation of the close area also helps in reducing the process. Instead of monthly analysis, financial statement areas can be analysed quarterly which helps in saving time and the problems can also be corrected timely, if any.

Use of applications such as MS Excel, Dropbox helps in proper accumulation of the data required for the month-end reporting. Requesting the vendors to send invoices electronically, as it helps in maintaining the data accuracy and also saves time and money.

Communicating with the people and engaging them in the close process also helps in shortening the process. Making people aware about the areas that require changes, areas in which money needed to be spent, need of training, identifying the factors which can cause delay in the close process and interacting with the non-financial areas to get the necessary information. All this can be done by holding group meetings time to time. It also help them in increasing their performance. 

A public company which is registered under the Securities Exchange Act 1934 is required to file reports with U.S Securities and Exchange Commission (SEC). The aim of filing the reports is to provide the necessary information to the investors, shareholders and public. The documents which are required to be filed under SEC are form 10-K, form 10-Q and form 8-K.

Form 10-K: The annual report of a company is given in this form and is filed annually. This form informed the public about the company’s financial condition and also includes its annual financial statements which are audited, a brief about the functions performed, detailed information about the business and its assets. It also provides the data on the management team, number of shareholders and their interest, profits and revenue made during the year.

Form 10-Q: This form is filed for first three quarters of a fiscal year. It contains financial statements which are not audited and gives the summarised information about the ongoing business of the company and shows the quarterly revenue earned by the company. Quarter to quarter comparison of the company’s performance can also be seen in this form. 

Category of Filer	Revised Deadlines For Filing Periodic Reports
Form 10-K Deadline	Form 10-Q Deadline
Large Accelerated Filer ($700MM or more)	60 days	40 days
Accelerated Filer ($75MM or more and less than $700MM)	75 days	40 days
Non-accelerated Filer (less than $75MM)	90 days	45 days
(source: “SEC.gov | About the SEC”, 2017)

SEC Filings and their Frequency

Form 8-K: It is known as “current report” which a public company must file with SEC. The form is to be filed within four days after the disclosure of the event. It is done in order to aware the shareholders regarding the major events which has taken place such as mergers and acquisitions, changes and amendments done, securities issued and so on.

The detailed information about all these forms can be derived from “SEC EDGAR” official website. (“SEC.gov | About the SEC”, 2017) 

Answer: The two methods which can be used by the controller to control or reduce costs are budgetary control and standard costing.

Budgetary control: It is a tool used to reduce the cost. It shows the comparison between the actual and budgeted income and expenses and also state about the variances occurred. Some advantages and disadvantages of this method are as follows:

A proper control over the capital and revenue expenditure is done in order to increase company’s profits.

Production cost is reduced and sales volume increases by using resources optimally.

Because of the element of uncertainty in the future, the budgets drawn on the basis of it may not stand true or correct. Assumptions can be proved wrong because of undetermined future.

For small scale organisations, it is not easy to prepare budgets as it includes heavy costing (Horngren, Bhimani, Datar, Foster, & Horngren, 2002) 

Standard Costing: Assigning the expected costs of material, labour and overheads is known as standard costs. This method involve comparing of standard cost with the actual cost occurred and finding the variances. The pros and cons of this method are:

It a very effective method of controlling cost if implemented properly.

Efficiency of product is improved which helps in reducing cost and increasing profits.

Organisations operating on small scale cannot adopt this method as it is expensive and require high technical skills.

Due to the changes in the business environment, the standards also changes and are need to be revised time to time. The process of revision of standards is too long and create many problems (Panchenko, 2017). 

There are various options a company can use to acquire or finance an equipment. Instead of paying two million dollars, it can look up to various alternatives available for acquiring the equipment. These options are leasing, hire purchase, loans, renting.

Cost Reduction Methods

Equipment leasing is one of the option which is exercised by all sizes of companies. It means taking the equipment on a rent and paying a certain amount in exchange of it. In this, the lease payments are usually lower than the purchase price. (Nevitt & Fabozzi, n.d.)

Hire purchase is another method used for purchasing the equipment. It involves paying regular instalments in exchange of the good purchased. This method do not give the ownership right to the user until the whole amount is been paid.

Equipment loans are the loans taken by the organisation to buy an equipment. It does not require any collateral security and the equipment is itself treated as a security for the loan taken. 

The reasons for not offering the dividend by company X are lack of finance, investing in other projects, unnecessary expenditures and so on. Lack of finance is considered as the main cause for not offering dividends. As declaration of dividends is done form the company’s retained earnings and a company having less or inadequate earnings may not be able to pay dividends. Another reason for this is company’s unnecessary expenditures which reduces their profits and make them unable to declare dividends. Investment in various projects, expansion plans is also done from retained earnings of the company, thus creating the chances of not giving dividends to its shareholders.

Declaration of dividends has positive and negative impact on the company. If company does not give dividends timely, the price of its equity share decreases. Declaring dividends also reduces the retained earnings of the company as they are been paid out of them only and as a result it will not have enough cash to invest in other projects. Company can lose the clients who want regular dividends, if it is unable to pay them at a certain time.

Whereas paying dividends gives benefits to the company. Investors are attracted towards those companies where there is stability on part of giving dividend which assures them about their earnings. Moreover announcement of the dividend payments states about future aspects of the company and give it an additional publicity during this period (Tulsian, 2007). 

Current ratio and quick ratio are used to measure the liquidity of a company. These ratios show the company’s ability to meet its short term liabilities. The ideal current ratio is 2:1 and quick ratio is 1:1 (Peterson & Fabozzi, n.d.). 

Solvency ratios are used to measure the capability of the company to pay its short term and long term debts. These are Debt-to-Equity, Total Debt-to- Total Assets, Interest coverage ratio, Equity multiplier, Debt ratio, Fixed charge coverage ratio (Khan & Jain, 2017). 

Items should be included in RFP for the implementation of financial system are:

Preparation and control of budget

Accounts Payable (“Request for proposal for Integrated Financial Management System, Software and Implementation Services”, 2013). 

Permanent: Meals and Entertainment

Temporary: Accruals, Prepaid and Penalties (Skeie, 2017). 

Loan covenant is a condition prescribed in commercial loan which binds the borrower. It states some conditions which are needed to be fulfilled by the borrower and also states which action is required to be taken and in what situation (Chodorow & Falato, 2017).  

References

Chodorow-Reich, G., & Falato, A. (2017). Loan Covenants and the Bank Lending Channel.

Horngren, C. T., Bhimani, A., Datar, S. M., Foster, G., & Horngren, C. T. (2002). Management and cost accounting. Harlow: Financial Times/Prentice Hall.

Khan, M., & Jain, P. (2017). Financial Management (5th ed.). New Delhi: Tata McGraw-Hill Publishing Company.

Nevitt, P., & Fabozzi, F. Equipment Leasing (4th ed.). Frank J Fabozzi.

Panchenko, A. (2017). Standard Costing: Advantages and Disadvantages.

Peterson, P., & Fabozzi, F. Analysis of Financial Statements (pp. 75-123). Frank J. fabozzi.

Request for proposal for Integrated Financial Management System, Software and Implementation Services. (2013). Retrieved 24 October 2017, from https://www.krl.org/documents/about/Financial%20Management%20System%20RFP.pdf

SEC.gov | About the SEC. (2017). Sec.gov. Retrieved 23 October 2017, from https://www.sec.gov/about.shtml

Skeie, Ø. B. (2017). International differences in corporate taxation, foreign direct investment and tax revenue.

Tulsian, P. (2007). Business Studies (6th ed.). Ratna Sagar.