Tips for a Smoother Financial Closing Process
Author: Chris Lindner
The welcoming of 2018 also brings the fiscal year’s end for many of us. The year-end financial statement closing process can be stressful and time-consuming if you don’t have a good plan. Here are some tips to help make this process quicker and less stressful for you and your team:
- Procedures Checklist: Develop a checklist of specific procedures and tasks to complete. This document can be started early and should be an iterative document that’s revised regularly based on input from your team and feedback from previous closings. Developing a list of items and tasks will help you determine the work that needs to be completed, which can help you manage your time and decide what tasks can be delegated to other team members or departments.
- Detailed Schedule: Prepare a detailed schedule for completing individual items and tasks. Using the procedures checklist described above, you should now establish a timeline for your financial closing process, including specific deadlines for individual items and tasks. This timeline should be seen as a goal for your team and organization, but also should be realistic and achievable. Your team should meet regularly to review the schedule and provide updates.
- Communication: Communicate with other departments and third parties early and often. Some financial information dependent on information from other departments and third parties can’t be estimated by the entity alone, such as information received from actuaries. Communication with these other parties regarding deadlines for information often helps establish clear expectations to reduce or remove the last-minute receipt of such information.
- Estimates: The financial statement closing process often is delayed as a result of waiting to receive information from other departments or third parties. Consider if any of these financial statement items could be recorded as an estimate and then adjusted subsequent to period-end when the information is received. Organizations often develop estimates by reviewing historical patterns of actual balances, looking to comparable industry data or using another quantitative factor, e.g., water consumption. In our experience, organizations with a quick and smooth closing process nearly always use estimates in their financial reporting.
- Reconcile Often: Reconciliations are a key component of any financial statement closing process, and many organizations may spend a significant amount of time resolving errors and variances if they wait until year-end to complete these reconciliations. Implementing a system of reconciliations performed regularly throughout the fiscal year can help your organization identify and resolve some of these issues during an interim period and allow your team to focus time on other areas during the traditional closing process. A best practice is to reconcile cash and bank balances daily and reconcile all other account balances at least monthly.
- Evaluate Results & Obtain Feedback: The ideal closing process is different for every organization, and it’s always possible to revise and improve your current practices. At least annually, after the financial statement closing process is complete, evaluate the success and weigh the system’s pros and cons. This evaluation should include obtaining feedback from your team members, other departments and any other stakeholders. Challenge the current process and be open to innovative ideas to help modify and improve how your organization achieves this important goal.
We all have a lot on our minds this time of year. Taking steps to improve your financial statement closing process can allow you to worry less about your debits and credits and focus more on the decorations and treats.
Contact Chris or your trusted BKD advisor for assistance on the financial closing process or with questions.