Whether you are a listed or private company, the issue of closing the books is ongoing. Publicly traded companies usually have well established processes in place to meet the deadlines imposed on by the regulators. However, closely held businesses often struggle with the year-end closing process. In most of the organization the Account team closes its year-end books with a commitment that next year they will finalize their books on time but next year again they close the books with the same commitment. The Year-end closing process and preparing financial statements on time is a tedious and daunting task; it is not a one-man show, but a group activity where whole group coordination is required. Complete accounts team, Taxation team, Audit team, Management Team and even Operation team coordination is required to complete finalization of books on time. Top management and main Auditor role is very crucial as they have to sign the Balance sheet. Review By Management Team and then required change and adjustment conclude the Book closing. There are cases where organizations prepare the financial statements but due to not availability of Top management, it gets late to finalize the financial statement.
Challenges
The Major challenge faced in closing of Books is the lack of coordination and delay in receipt of information. In case of Multi location organization, it becomes a tedious task to get data information easily. Even uniformity of data format is one major issue
Revenue reconciliation, Stock reconciliation, GST Reconciliation, vendor and customer reconciliation, interbank, inter-company, inter-unit reconciliation are major challenges in delay in finalizing financial statements. In Many instances financial statements get delayed due to late start of Tax reconciliation and tax planning. Not receipt/ reconciliation of raw-material given to sub-contractor for processing also cause delay in closing.
Late receipt of supply and service invoices is one more issue. There are cases where Material / services including its invoices are received but it does not reach to accounts team due to lack of coordination within departments. Non-submission of bills of expenses by staff and senior management also delays the closing of books. Incomplete customer invoices settlement (i.e. Invoice-wise allocation of the amount received from the customer) also causes a delay. In general customers do not provide these details until asked from them. Where Non settlement of customer presents wrong picture of customer outstanding, it delay in getting collection from customers
In many of the cases, Account team complete the closing on time but Statutory Audit start their audit very late and after that lot of time is spent only in sorting-out the statutory audit queries and Year end adjustment which cause major delay in finalizing financial statement
Control over delay in Year–end closing of Books
Monthly Closing of Books and Review
Biggest plan of action to make Year-end closing on time is closing of books on Monthly Basis. Where the practice of monthly closing helps to keep control and tracking of purchase, sales and major Expenses Invoices, it helps to keep control on advances paid, pending debit balances of vendors, Credit balances of Customers and keeping track of Security Deposit etc. It also help to identify discrepancies on time, prevent accounting errors and reduce the number of surprises and investigations well before the yearly closing.
Review of an entity’s financial performance on a monthly basis helps in better Business planning, tax planning, Budgetary control and to take timely action to correct or improve its future performance, it help to avoid any delay in year-end closing
Expenses and Revenue Trend Analysis
Accounts team should make Expenses and revenue trend analysis on a monthly basis. It helps to keep control on Expenses and to check if expenses trends are in line with revenue. Where One can find-out exceptional Expenses, it help to check if compulsory expenses like Salary, electric,Telephone, Internet, Stationary Expenses etc have been booked for all 12 Months. Trend Analysis also helps in proper classification of head of expenses according to the nature of business of the entity.
Complete Narration
It seems childish to say that complete narration helps in year-end closing on time but it plays a major role while closing books and sorting out auditor queries and making financial and Business analysis
Reconciliation
In general, reconciliation is given least importance while accounting but where it play a major to keeping books accurate and up to date it helps in closing of year-end books on time., Entity should dedicate some resources to make every month reconciliation. There are so many reconciliation which need to be completed regularly like Revenue reconciliation, Purchase and sale reconciliation with GST Return, 26 AS Reconciliation, PF/ESIC reconciliation, significant vendor and significant customer reconciliation, significant Lenders reconciliation, interbank, inter-company and inter-unit reconciliation.
Regular reconciliation forces the group companies to update their accounts with intergroup transactions, actual/accrued interests Payable and receivable on all running Secured/Unsecured loans Fixed Deposits and investment and records properly
Reconciliation of stock as per books and physical records maintained by the warehouse or factory may be time-consuming. So organizations should start this activity early so that it can be completed on time. In the case of a Manufacturing company or retail business, stock as per books and physical inventory must be reconciled regularly to ensure no pilferage of stock and a complete record of the stock movement is tracked. Companies need to have quantity-wise & item-wise value of closing stocks.
Reconcile GST ledger balances at year-end (Electronic Cash Ledger, Electronic Credit Ledger & Electronic Liability Ledger) with the balances showing in the books. Accountants should download all GSTR-2A and GSTR-2B related to F/Y and record GST Inputs if it hasn’t been recorded except ineligible ITC. If any input recorded in books is not appearing in GSTR-2A, accountants are advised to highlight these cases with the concerned parties and ask those parties to take corrective action. If any transaction is appearing in the GSTR-2A and not recorded in the books, it should be recorded if belongs to the company.
One should also check outward sales/ service invoices where GST is not paid or paid at a lower rate. In cases where a company has recorded GST Inputs and it has been more than 180 days and payment hasn’t been made so far, the company needs to reverse these Inputs and pay the corresponding tax liability along with interest.
Monthly Internal audit– Organization should make the system to make Regular Internal audit, there are system in many organization where accounting of Expenses made even after Internal audit approval only, Regular internal audit helps to sort-out audit queries on time and avoid any surprise at year-end and mainly it help to stop repeating any mistake till year end and make Internal Control.
Timely start of Statutory audit
Organization should plan with a statutory auditor to start its audit on time. Where it will help to conclude statutory audit on time, it give ample time to resolve any query on time and make any correction and adjustments.
Updated Fixed Asset Register
As per Statutory Compliance as Per CARO,2020, Auditor has to report Whether the management has carried out physical verification of the assets at different intervals reasonable with the size of the company, Whether the material discrepancies if any noticed on physical verification have been accounted for in the books of accounts. Company should maintain a file of All Fixes Asset Purchase bills separately. The main purpose for the maintenance of Fixed Asset Register is to have accurate information of all assets which the company holds on that date. Where FAR is maintained on a regular basis, Entity can keep control on its Fixed assets, it can compute the amount of Depreciation easily at year-end.
Provisioning,Amortization and Adjustments of Other Expenses-
One should ensure that Previous year Provision and Exp payable has been reversed and make provision of outstanding expense for respective FY and Deduct TDS on year end provisions, it is observed that Accountant generally fails to deduct TDS on year end provision of expenses. Proper Accounting should be made for March Month Expenses paid in April of respective FY like Salary, Audit Fees, PF, ESI, other statutory dues, Interest Payable and receivable on loans and investment properly and other business related expenses. Company should check if Expenses paid in Advance like, Rent, Internet charges, Insurance Expenses etc are properly bifurcated into Prepaid and previous year prepaid has been amortized during the year.
Centralized repository (data base) and Unique Format of Accounting– Entity should make the system of central database and regular update of information and data. It ensures the smooth availability of Information and data in prescribed format of various locations. Format of Accounting and grouping of ledger should be in alignment of group companies with parent company. It helps in early finalization of accounts of group companies and consolidation of financials.
Conclusion
Every Company working toward timely close of the financial records should Establish correct processes and systems, a reliable accounting system, Hire the right people, Written process and procedures in the accounting department.
Company should make an accounting calendar for closing of book including firm deadlines for certain activities, deadlines for turning in information from operations and accounting accounting, Hold people accountable in operations and accounting to meet the deadlines and Always include at least one day after the preparation of the Financial statement for analysis
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