Rose Report: Issue 17

Year-End Close: Success is in the Details

issue17-pic-story1 As 2013 comes to an end, firms are preparing for their annual year-end close, which will typically take place in January and February. There are a few steps that companies can take to ensure that this final task is a relatively smooth and easy one.

The most important step is something firms should be doing throughout the year: watching over the books carefully and closing them out on a monthly basis. As you look ahead to the year-end close, you’ll want to make sure that you have full reconciliations of all of your balance sheet accounts. It is also crucial that a company’s financial leaders perform a thorough fluctuation analysis of all of their revenue and expense accounts throughout the year.

It’s equally important to verify that you have access to all of the necessary underlying documentation and support. In today’s business world, this documentation is increasingly being kept electronically to streamline the recall of data. According to a survey conducted by the National Small Business Association, there’s been a surge in small firms using cloud computing. In 2010, it was just five percent—in 2013, the figure was 43 percent. For firms using cloud computing, which allows for quick access to all documentation, this step has become much easier.

Firms that haven’t yet moved to the cloud can begin to take some steps in that direction at year-end. For example, they can begin to digitize transactional support and other details. They can also start to organize and index their documents in a way that’s easy to recall. Moving an organization to the cloud can be complicated, but up-front planning and incremental steps will help ease the transition. And patience is key. Writes Accounting Today: “The reality for most businesses and firms is that getting to the cloud, no matter how compelling, will take a while.”

Another measure companies can take to ensure a smooth year-end is to execute a thorough and complete November close. This lays the groundwork so that when the year ends, you’re really just closing out the last month of activity.

When it comes time to perform the year-end close, keep in mind that at the end of the year accuracy trumps timeliness. Throughout the year, when a company needs to focus on day-to-day operations and keep the business running, timeliness is paramount. But at the end of the year, it’s crucial to be detail-oriented with a higher degree of accuracy.

Why? When stakeholders evaluate a company, the most important criteria they look at are the year-end numbers. They provide a snapshot of a company’s financial standing and will be kept as a benchmark for years to come. Furthermore, mistakes at year-end could find their way into tax returns. Year-end audit adjustments create question marks about the validity of all the numbers, and can even cause doubt as to the adequacy of management of an organization.

In order to improve accuracy, an organization may choose to leave its books open an extra week or two. This gives the accounting department time to make sure all accounts payables and other liabilities are accounted for and all 941 and W2 forms are reconciled. Because, remember: When it comes to the year-end close, the success is in the details.