By Maureen Renzi, vice president, communications
For CPAs, “year-end” doesn’t necessarily mean Dec. 31. However, members of PICPA’s Corporate Finance Cabinet* thought the winding down of the calendar was a good time symbolically to share some tricks for streamlining the year-end close, whether your fiscal year ends on Dec. 31 or on another day during the other 11 months of the year. CPAs who serve in corporate finance roles, such as controllers and CFOs, are well aware of the challenges, so they wanted to share these time-tested tips. From automation to communication, here are some suggestions from CPAs who have experience in managing and executing less stressful closings.
- Send out reminders to other departments whose information flow affects closing, listing specific closing timeframes and expectations by department so there are no surprises.
- Be out in front of employee requests for time off. Minimizing time away by personnel or establishing a blackout period during the critical close days/cycle makes the work environment less stressful. This approach helps keep things moving when the right people are in the right seats to keep the process on schedule.
- Run analytics on general ledger accounts in advance of year-end so you can investigate unusual results before year-end. Things to look for include high dollar expense accounts, balance sheet ratios/turns, or unusual sales/market/division results. (While you may be aware of results, if you document before year-end it will save you time when the audit is in process and you are asked for explanations.)
- Have explanations/adjustments done in advance of close for aged inventory, accounts receivable, accounts payable, inventory, unmatched purchase order receipts, etc.
- Treat month-end closes in the fourth quarter as practice and preparation for the year-end close. For example, go the extra mile to reconcile accounts in October or November that are normally put off to quarter-end or year-end and make any necessary adjustments promptly.
- Create and use a checklist to make sure that all pieces and parts of the close process are accounted for. There is nothing worse for a CFO than doing the overall financial review only to find a material entry is not posted or something is misposted.
- Automate as much as possible. Try not to post manual journal entries that could result in errors. If you do not post journal entries using an upload Excel feature, explore doing so. Your spreadsheet can have all of the checks and balances to prove your entries before you create a journal entry to upload.
- Post as many entries as possible earlier than month-end and year-end, as well as in the correct year as opposed to back dating them. Many accruals (such as accrued salaries and payroll taxes) can be calculated and posted early. They do not need to be posted at year-end. They can still be accurate but posted early.
- Clean up fixed-asset accounts: Expense anything that shouldn’t have been put in those accounts, and make sure you have a complete list of purchases to determine if you can max out your depreciation deduction or if you should wait until after the first of the year to purchase any additional equipment.
- For a smooth 1099 issuance process, require all vendor disbursements by check to have a completed W-9 on file prior to issuing the first payment. Annually review the vendor, customer, and employee lists to ensure that all vendor payments are posted as vendors, not employees or customers. Verify appropriate mapping of general ledger accounts that need to be included on the 1099, especially if accounts were added during the year. Run a list of potential 1099 vendor payments prior to year-end to review and make corrections right away. Order forms early because supplies can sell out.
- Run a test file through the 1099 reporting module in the enterprise resource planning system, and check for errors through November year-to-date accounts payable activity.
- Write off any receivables that are not going to be collected in advance of year-end.
- Get physical inventories done early if possible. If your audit allows, consider performing physical inventories in the days or weeks in advance of year-end, and then roll forward the balances. Slow moving inventory could also be counted early.
- By mid-December, complete a roll-forward of all incentive compensation calculations through November year-to-date results.
- Roll forward the audited financial statement template and update all footnotes to the extent possible.
- Roll forward spreadsheets in advance of Jan. 1, so when the month closes it is easier to just plug in the figures.
- Keep lines of communication open. Meet with everyone on the team every few days down the stretch to make sure everyone is on the same page. Those meetings should only take 10-15 minutes with the goal of keeping the team on task.
Many members of the Corporate Finance Cabinet prefaced their recommendation with a phrase such as, “This seems simple …”. What is interesting, though, is that each person has a unique tip to share. But if there’s one theme throughout the list, it is the need for advance planning.
What other tips should finance professionals consider as they prepare for year-end close?
Author’s note: I’d like to thank PICPA Corporate Finance Cabinet members for their responses, particularly Jessica Cassarly, Gregory Cummings, Michael De Stefano, Marlene Haws, Toney Horst, Dennis Kennedy, Aaron Risden, Kathleen Rue, and LeeAnne Stump.
* The PICPA Corporate Finance Cabinet is a broad-based thought leadership group of PICPA members working in corporate finance and accounting roles. This group works to improve connections among corporate finance members.