Year-End Accounting Checklist: Close the Fiscal Year Right

Just the thought of the year-end close process can invoke fear in the hearts of those on finance teams. If you don't get your close right, you risk missing deductions, accruing costly penalties, and making assumptions on false financial data in the new year, setting you up for failure. 

You can avoid these consequences by understanding potential challenges, following specific accounting steps, and learning how to prepare for future closes. 

Table of Contents: 

1. Common Year-End Accounting Challenges 
2. 8 Steps for the Year-End Close Process 
3. Year-End Close Best Practices to Minimize Stress & Errors 
4. Tools & Software to Streamline the Close Process 
5. Year-End Close Checklist: How to Prepare Throughout the Year 

Common Year-End Accounting Challenges 

One of the best ways to prepare for the year-end close process is by understanding potential solutions to some of the most common challenges. 

Time Constraints 

Challenge: The end of the fiscal year is a busy time for organizations. This means limited time to complete closing tasks because of existing operational demands. As a result, finance teams may feel forced to scramble, resulting in costly mistakes and burnout. 

Solution: Instead of scrambling, start the closing process early. Identify and complete tasks that can be completed prior to year end.  Analysis can be rolled forward to year end with the bulk of the work completed before year end.  Create a detailed closing timeline and assign responsibilities with clear due dates accordingly. Discuss the closing timeline with your staff to ensure that everyone is working towards the same goal and the timeline is achievable.  Be sure to build in contingency time for unexpected delays. 

Data Inaccuracy 

Challenge: Incomplete or inaccurate financial data can delay the closing process and lead to damaging errors. These errors can also result in inaccurate financial reports in the new year, which can skew decision-making and lead to further loss. 

Solution: Perform monthly reconciliations and regular data reviews leading up to the year-end close. Finding errors before year-end gives you more time to reconcile than you would have at close. It also ensures data integrity before you have to close your books. 

Managing Outstanding Items 

Challenge: Unresolved transactions at year-end can create bottlenecks that delay your closing process. 

Solution: Use a checklist to track open items throughout the year. Set clear guidelines on how and when to reach out to stakeholders to resolve outstanding items. 

Cash Flow Stress 

Challenge: Besides the need to close your books, year-end brings about even more expenses, such as bonuses and tax payments. These expenses can make managing your year-end cash flow difficult. 

Solution: At the beginning of each year, perform a cash flow analysis to predict the cash flow you'll need at the end of the year. Then, establish reserves for these major expenses. The cash flow analysis should be updated throughout the year to ensure that cash needs are met at the end of the year. 

8 Steps for the Year-End Close Process 

There are many tasks to complete during the year-end close. To avoid becoming overwhelmed or missing a critical task, follow a step-by-step checklist. Here are the eight steps required to close the year the right way. 

1. Reconcile accounts: Reconcile all general ledger accounts, bank accounts, credit card statements, and investment accounts. Match all subsidiary ledgers, such as accounts payable and receivable, to the general ledger. Reclass or write off balances throughout the year to ensure that accounts are reconciled before you get to year end. 
2. Review financial statements: Conduct a thorough review of your financial statements, including income statements, balance sheets, and cash flow statements. Look for any  significant fluctuations vs. prior year and prior quarters and that fluctuations can be explained. Make all necessary adjustments, such as depreciation, amortization, and accruals. 
3. Review and record outstanding items: Make sure outstanding checks and deposits in transit are all accounted for. If there are any unresolved or outstanding payables or receivables, now is the time to address them. 
4. Review inventory and fixed assets: If you have inventory, conduct a physical inventory count and reconcile that count with your accounting records. Write off any obsolete or damaged inventory. Finally, review your fixed asset registers for accurate depreciation and disposal of any unused assets and verify that all capitalized fixed assets follows the company’s capitalization policy 
5. Prepare tax information: Review your tax accounts and prepare the necessary filings. Verify compliance with year-end reporting requirements, such as those for 1099s. 
6. Review legal contracts: Review your legal contracts for any provisions impacting your financial statements, such as revenue recognition timing or contingent liabilities. 
7. Prepare for audits: Organize all supporting documentation for both internal and external audits. This may include all financial statements, accounting records, and documentation of internal controls. 

Year-End Close Best Practices to Minimize Stress & Errors 

Accounting teams are busy. In fact, according to Gartner, demands on accounting staff capacity are rising. A recent survey found that 73% of accountants report their workload has increased because of new regulations. The same survey found that 18% of accountants make financial errors at least daily because of these capacity concerns. 

The stress on accounting teams increases exponentially during year-end. And with even larger workloads, errors are to be expected. However, there are some steps you can take to minimize stress and prevent costly errors during your closing process. 

Plan Ahead 

Waiting until the end of the year to prepare for closing could cause your team to feel rushed, leading to burnout and error. Instead, plan ahead for closing by developing a clear checklist and timeline at least a month in advance (if not earlier in the year — more on this below). The above checklist is a great place to start. 

You should also communicate closing deadlines and expectations to all team members, ensuring everyone understands their responsibilities. And remember: unforeseen issues are bound to pop up. Allocate contingency time in your year-end plan to prevent missed deadlines. 

Leverage Automation 

Repetitive tasks like reconciliation and report generation take time and add unnecessary tasks to your team's long to-do list. Automating these tedious tasks can save your team time, allowing them breathing room for other critical year-end processes. 

Coordinate Across Departments 

While often delegated to accounting and finance teams, year-end closing can be a cross-functional effort. With more hands on deck, you can save your finance team from unnecessary stress.  

For example, collaborate with other teams, such as HR and operations, to gather necessary financial or missing data. This prevents the finance team from having to track down the data themselves. Chances are, other teams know exactly where to find what's required. But you will need to provide the other departments with clear deadlines for when you will need the required data. 

Keep Your Team Informed 

Requirements such as the Generally Accepted Accounting Principles (GAAP) and those specific to regulatory compliance can change. These changes directly impact your year-end accounting procedures. 

Failing to notice policy changes results in errors and wasted time for your team. Keeping your team informed on the newest regulations throughout the year will help you avoid these consequences. 

Tools & Software to Streamline the Close Process 

In addition to the above best practices, technology can help you simplify your year-end close process, prevent mistakes, and reduce stress for your team. 

Reconciliation Tools 

Reconciliation software automates the account reconciliation and close process. By pulling data from your general ledger, it compares that data to other financial statements and invoices to reconcile your accounts. 

Reconciliation software eliminates the need to compare data manually, saving time and effort. Examples of these tools include BlackLine and FloQast. 

ERP Systems 

Enterprise resource planning (ERP) software is used to track and manage your organization's resources. For accounting, ERP systems provide reporting, cash management, revenue recognition, invoicing, accounts payable and even forecasting. 

ERP systems centralize your financial data and processes, boosting visibility, uncovering insights for better decision-making, and helping you work more efficiently. Examples of ERP tools include NetSuite, Oracle, and SAP. 

Reporting Tools 

Reporting tools use automation to perform data collection, data analysis, and report generation, bringing you insights without the heavy lifting. These tools allow you to create dashboards that visualize data insights, helping you make informed decisions about your finances. 

There are many reporting platforms out there based on your needs, including Microsoft's Power BI and Tableau. 

Audit and Compliance Software 

Audit and compliance software automates tedious processes, such as risk assessments and internal control management. These tools help you uncover more risks and take quicker action to mitigate them. 

The software can streamline internal control testing by efficient management of evidence, documentation, and review comments.  Automated workflows for tasks like issue identification, follow-up, and reporting will eliminate the need for multiple spreadsheets and manual tracking. 

These tools also offer robust documentation management, helping you surface supporting evidence instantly whenever it's needed. Examples of these platforms include AuditBoard and Workiva. 

Year-End Accounting Checklist: How to Prepare Throughout the Year 

If there's one thing that can help you reach a successful close, it's this: Don't wait until closing time. Instead, prepare for year-end throughout the year. 

Preparing in advance helps you reduce the workload for finance teams, keep financial data accurate, prevent outstanding items that slow you down, and other benefits. Start your year-end close process early by following these steps.

1. Reconcile Regularly

You should reconcile your accounts throughout the year instead of waiting until the end. For example, consider reconciling each month or every quarter. This ensures your financial data is accurate before you move into the next period and helps you identify and address issues earlier on instead of at close.

2. Maintain Documentation

Year-end requires an abundance of documentation, from journal entries to financial statements. And one missing or inaccurate critical document can derail your close process. 

Throughout the year, prioritize keeping detailed records of all transactions, journal entries, invoices and adjustments for accuracy. To keep documents from disappearing, use document management software to store and organize files for easy access. 

Examples of document management software include DocuWare and Microsoft SharePoint.

3. Set Interim Milestones

Interim milestones are checkpoints, ensuring your accounts are up to date throughout the year and reducing the amount of work at close. For example, you can conduct interim closes quarterly to keep your books reconciled and check your progress toward year-end goals.

4. Complete Audit Readiness Checks

You don't want to wait until the end of the year to discover that you're far from ready for an audit. Instead, complete audit readiness checks throughout the year. 

One way to do this is by scheduling a mid-year internal audit. During this audit, you can ensure documentation and processes are on track and proactively eliminate any issues you find.

5. Plan for All Scenarios

Fluctuations throughout the year lead to financial surprises at year-end. But, through scenario planning, you can prepare for these fluctuations in advance. 

Throughout the year, take time to develop contingency plans. Consider the potential risks and determine the steps to take in the event any of the risks threaten your finances.  

Optimize the Year-End Close Process for Accuracy and Compliance 

The year-end close process isn't without its challenges. But by following specific closing steps and preparing for year-end in advance, you'll meet these challenges head-on. If you're struggling with your year-end close process, 8020 Consulting can help. 

Our team delivers a wide range of accounting services to fit your organization's specific needs. From helping you optimize your current year-end process to providing interim support at year-end, our team has the finance expertise you need to reach your goals.