TIPS FOR A LESS-STRESSFUL YEAR-END CLOSE By DAVID LOPEZ, CPA
DAVID A. LOPEZ AND COMPANY
As the end of 2021 draws near, external CPAs, corporate controllers and internal accounting staff are looking towards the year-end close. For far too many accountants, the year-end close is a stressful activity that strikes up feelings of anxiety and tension.
6
WINTER 2021/22 | NEW JERSEY CPA
Feelings of uneasiness are not limited to just small company fiscal personnel. The financial professionals that practice within large business enterprises often express the same level of anxiety when the fiscal year is coming to an end. Whether its Dec. 31, June 30 or some other date on the calendar, the year-end close does not have to be a stressful activity that ruins the holiday season or summer vacation plans. With proper planning, the year-end close can be a seamless activity that can be completed efficiently and — most importantly — accurately. PLAN AHEAD The year-end close process should begin well before the end of the year. The most important characteristic of a smooth close is timeliness. Timeliness in recording transactions, timeliness in reconciling accounts and timeliness in investigating unusual variances ensures accountants are not scrambling at the end of the year. Let’s assume the business operates on a calendar year. At the latest, the annual closing of the books and records should start by Oct. 1, the first day of the fourth quarter. Some people may think this is too early to start the close, but getting out of the gate early in the fourth quarter minimizes the chances of mistakes being made or important entries being missed as the accounting team is not working under the stress of a looming deadline. During the first days of the fourth quarter, the members of the accounting team — both internal and external — should develop a closing checklist. This checklist should include all the tasks, analysis and
entries that must be completed, calculated and “booked” to ensure the accurate and complete closing of the general ledger. In many cases, this checklist stays consistent from year to year, but a thorough review of the document should be completed annually to ensure any new activities that require attention are not forgotten. Another advantage of getting an early start is that those responsible for the year-end close can request information from individuals outside of the accounting department. Many times, information from other departments is needed to complete the close, so requesting it early ensures it is available before year end or shortly thereafter. In addition to working with internal co-workers, critical financial information may also be needed from external professionals. For example, one of our firm’s clients has a large pension liability on their balance sheet. The liability must be analyzed and valuated by an actuary on an annual basis. Without this valuation, the books cannot be closed. Therefore, we communicate with the actuary well before year-end to ensure that the required information is in our hands on a timely basis. The actuary provides a report delivery date, and this allows the controller to be ready to book the entry as soon as the document is in his inbox. In addition to distributing requests for information, an early start to the close allows the finance team to perform actual accounting tasks before the last weeks of the year. For example, during the final 60 days of the year, a fluctuation (flux) analysis can be performed. The flux analysis, which compares results of operations from year to year, may identify variances that require attention. If needed, entries to address the variances can be booked prior to the end of the year. Lower-risk items such as fixed asset additions, disposals and depreciation expense can be booked. General ledger accounts that can be rolled forward, such as inventory, can be reviewed. In many companies, inventory counts can be done 30 days before the calendar turns to a new operating cycle. Take the count 30 days
