Waiting until the last minute to start year-end closing can add to the already stressful process. By performing pre-close activities throughout the year, accounting teams can ensure a faster and easier cycle time and alleviate some of the year-end pressure.
When performed throughout the process, these five pre-closing activities can assist in a smooth and efficient year-end closing.
1 . Craft your Gameplan
One of the first and most important things an accounting team should do is develop a game plan for the annual close. Leaders should determine and communicate when certain close activities are going to be performed and by whom. The communication and delegation of activities must be clear, especially for leaders working within large organizations that are globally distributed or that have multiple business units.
2. Get the Business Involved
Involve all areas of the business in the yearly close. It is important for financial leaders to work with their business colleagues in the warehouse, payroll department, HR, and other functional areas to ensure that these parties are aware of how their work affects the goals of the organization as it pertains to the yearly close.
3. Use a Checklist
Planning should include a checklist with all of the pre-closing, closing, and post-closing activities that need to be completed for the process. This checklist should be available to all members of the accounting team and anyone else who might be involved in the year-end close process, whether from finance, sales, purchasing, or elsewhere. While a checklist might feel elementary and simplistic, having an established closing checklist can ensure that the sequential steps required in your organization’s annual close are completed smoothly and on time.
4. Perform a Monthly Reconciliation
Reconciliations of challenging and complex accounts can require a great deal of time to work through. Typically, reconciliations on accounts related to liability and revenue involve tracing transaction entries to source documents (for example, sales contracts, invoices, statements of work, etc.), which adds another layer of time and complexity to the process. When daily system reconciliations are not possible, monthly reconciliations help reduce the time required at year end to ensure your accounts are accurate, allowing the team to move on to other closing tasks more quickly.
5. Scan for Changes and Stay Up to Date
Look for anything that could cause an unexpected deviation in performance or require a lot of additional work. For example, in recent years the FASB updated its accounting standards for revenue recognition, which would certainly make the process more complicated for teams that were caught unprepared for this change. Do a quick check against any changes in accounting or tax regulations well before the year’s end—late December or early January is a terrible time to realize you’ve just been saddled with a lot of extra work and compliance-related activities.
See how your annual close cycle time stacks up against peers in APQC’s Cycle Time in Days to Perform the Annual Close at the Site Level