Finance & Accounting

What Should We Focus on in Financial Reporting this Year-End?

The end of the fiscal year is crucial for finance teams. Finance professionals spend much time each year poring over the books to produce their financial reporting, statements, and end-of-year accounts. An annual close takes an accounting staff 25 days on average to complete. In addition, month-end close and quarter-end reporting fall around this time of year, which means accountants have much larger workloads and are highly overworked.

Establishing and adhering to a defined process is among the most straightforward strategies for lowering stress and boosting productivity. This post outlines all the necessary procedures for a successful year-end closing cycle to help you get started.

What is the Year-End Close?

Year-end close, also called “closing the books,” examines, balances, and confirms that all financial transactions and elements of the business ledgers from the previous fiscal year tally up. This entails figuring out the business’s revenue, expenses, assets, investments, equity, etc.

The ultimate financial statement must be prepared and filed with the company’s official financial records in anticipation of an external audit.

Year-end close, also called “closing the books,” examines, balances, and confirms that all financial transactions and elements of the business ledgers from the previous fiscal year tally up. This entails figuring out the business’s revenue, expenses, assets, investments, equity, etc.

The ultimate financial statement must be prepared and filed with the company’s official financial records in anticipation of an external audit.

Accountants closely monitor any disparities between firm spending and budgets during year-end closing, specifically about accounts payable and accounts receivable. If any are discovered, they must contact the concerned staff members to obtain missing data or supporting paperwork to fix the disparities and update the financial ledger appropriately.

This implies that, in contrast to the calendar tax year, the founders of a firm are free to select an annual year-end closing date that best suits their sector and level of performance.

Since you must submit an annual report each year on time and error-free, you need this process to go as smoothly as possible.

Why is Year-End Closing So Difficult?   

The year-end close can be pretty tricky for several reasons, mainly if your team is dealing with:

• Inaccurate or missing documentation, including supplier invoices and receipts
• Human error brought on by fatigue, stress, insufficient knowledge, and carelessness
• Complex transactions entered by hand, involving several parties, currencies, and accounting procedures
• Misunderstandings and a lack of clarity regarding the work that needs to be done cause delays and mistakes in the closing process.

Economic Downturn & Climate Change in Financial Reporting

The evaluation of whether a company’s liabilities are current or non-current may be altered by the impacts of the economic downturn on the company’s capacity to meet the covenant conditions included in long-term loan arrangements. Unless a waiver is obtained before the period end that effectively corrects the violation, making the loan non-repayable after a year from the period end, a company’s violation of a covenant on or before the period end that results in the liability becoming repayable on demand is classified as a current liability.

The present economic climate may impact the viability of the going concern assumption, which could significantly harm a company’s performance and financial condition. Disclosures must be made where the continuing concern basis is not applied or when management knows, during the assessment process, that there is a material uncertainty regarding circumstances or events that could seriously impair the company’s capacity to operate as a going concern. Disclosure was also necessary when a substantial amount of judgment was used to determine whether a severe uncertainty existed.

Climate change should be considered. Companies have come under growing pressure in recent years to convey a clear commitment to lessening their environmental impact. These disclosures are frequently included in the annual report and draw interest from stakeholders, regulators, and investors.

One major mistake business must avoid is thinking that IFRS does not require disclosures related to climate change. Although IFRS does not yet have a single specific standard on climate-related issues, several accounting areas could be impacted by risks and uncertainties associated with climate change. Businesses must also reveal any significant decisions, estimations, and assumptions that might be connected to climate change.

Furthermore, there are new accounting problems related to climate change programs. For instance, some businesses may have used carbon credits to offset or lessen their carbon footprint or enter into different power purchase agreements to purchase electricity from renewable sources. The proper response to such emergent challenges will depend on the particular fact patterns and rigorous investigation to determine the pertinent accounting requirements of any specific IFRS guidance outlining the accounting.

Another frequent hazard is the possibility of only weakly provable connections between the disclosures made by businesses inside and outside the financial statements. Recently, regulators have pursued enforcement actions against firms for failing to disclose enough climate-related issues in their financial statements.

Companies must provide clear and entity-specific disclosures to demonstrate the uncertainty incorporated into estimates, such as measurable information regarding assumptions and sensitivities. Additionally, businesses must consistently include climate risk in their financial reporting and disclose climate-related issues outside the financial statements. Materiality must be evaluated using quantitative and qualitative criteria, even though some businesses may have previously determined that the impact on the financial statements was not quantitatively material.

Ensure compliance with evolving financial reporting services to address the impacts of economic downturns and climate change on liabilities, estimates and disclosures.

Impact of Tax Reform on Year-End Financial Reporting

The Pillar Two model regulations are being implemented in numerous nations. These rules force major multinational corporations to pay a 15% worldwide minimum tax rate on their earnings in every jurisdiction starting in 2024. The mandatory temporary exception to the accounting for deferred taxes resulting from the jurisdictional implementation of the Pillar Two model rules was introduced by the International Accounting Standards Board (IASB) in May of this year, amending IAS 12 Income Taxes. Thus, in 2024, current income tax expenses will be impacted by how the international tax reform affects a company’s financial success.

Additionally, corporations must disclose known or reasonably estimable information that enables consumers of financial statements to understand their exposure to Pillar Two income taxes during periods in which the applicable law is (substantially) enacted but not yet implemented.

The entire effect of the complex Pillar Two model laws on a corporation would depend, among other things, on how they are implemented at the jurisdictional level. As a result, businesses impacted by the Pillar Two model regulations must keep an eye on the progress made towards their (substantive) enactment and implementation in each pertinent jurisdiction. To compute the current income tax expense for 2024 and acquire the data required to submit the disclosures mandated by the amendments timely, they must also set up the proper processes and procedures.

Given the economy’s current state and recent events, companies may need to devote more time and resources to year-end financial reporting. The secret to good communication and ongoing enhancements in financial reporting is comprehending regulators’ and stakeholders’ shifting demands and specifications.

Things to Consider in Financial Reporting this Year-End

Fortunately, ahead-of-time planning is a straightforward and efficient way to reduce stress and facilitate end-of-year accounting for all parties. The best approach to reducing closing time is to monitor finances and manage spending throughout the fiscal year.

This guarantees that much of the tedious reconciliation process is completed, allowing accountants to concentrate on ledger reviews, financial report preparation, budgeting, and goal-setting for the upcoming year.

Fortunately, ahead-of-time planning is a straightforward and efficient way to reduce stress and facilitate end-of-year accounting for all parties. Virtual CFO services also entail financial reporting part.

Complete Tasks Before Year-End

Look into odd transactions and make corrections before the year is out. The year-end close will go more smoothly if the accounting staff is proactive and doesn’t put off work until after December 31. Petty cash and other small accounts with few transactions can be reconciled rapidly. As transactions are completed, collect and file all supporting documentation.

Use a Closing Schedule

Make a closing timetable with all the tasks that need to be done, reports that need to be turned in, and the dates for year-end procedures. The timetable guarantees that every adjustment is posted and all accounts are reconciled. Inform your personnel about the closing timetable and solicit their input on improving it.

Use Accounting Automation

Although you may already use accounting software or an ERP system, other solutions can automate tedious tasks. Everybody, engaged in the accounts payable process can benefit from an automation platform’s flexibility and visibility. Whether or not you use a purchase order to purchase from a seller, these concerns remain.

Automation platforms offer these advantages:

Businesses use AI and machine learning to automatically populate fields like the invoice number and general ledger accounts when an invoice is uploaded. Based on previous invoices, we shall suggest approvers.

Every processing stage is recorded through automation, from modifications to invoice fields to communications about the invoice, creating a communication hub with every invoice. Questions and answers are presented to enable everyone to check the status of an invoice.

Good ties with your vendors are crucial since they all have access to a vendor portal. The status of invoices being handled is visible to vendors.

Streamline your financial reporting with our accounting advisory services, addressing the impacts of economic downturns and climate change. We help you ensure compliance, accurate disclosures and climate-risk integration into financial statements.

Your Year-End Accounting Checklist

There’s so much going on that it’s easy to miss the details. To save you the hassle, we have created a comprehensive list that includes every vital activity. Using the official fiscal year-end checklist below, you can expedite your accounting system’s workflow and focus on the crucial responsibilities.

Documentation for an Audit

The accounting staff must produce paperwork for an audit and respond to enquiries. While not all businesses do audits, stakeholders (creditors, investors, and regulators) might demand one.

A CPA firm provides a written opinion stating whether or not the financial statements are “free of material misstatements” following an audit.

In other words, the auditor did not discover any significant inaccuracies to alter a user’s perception of the financial statements. One’s judgment determines how much money is deemed necessary.

Assume Vintage has a balance of $600,000 in accounts receivable. A $40 inaccuracy is insignificant to the CPA firm, but a $5,000 error raises red flags. To fix the $5,000 material error, Vintage might need to submit an adjusting entry and conduct an investigation.

Usually, auditors wrap up their work two or three months after the fiscal year ends. The CPA firm requires access to the general ledger, invoices, receipts, and other documents to post accounting transactions.

Reports For the Annual Budget

A yearly budget is the foundation of well-run companies, and managers are assisted in creating the budget by reports from the accounting department. One tool for financial management that’s utilised to boost profitability is variance analysis. Companies frequently incorporate budgeted amounts in the accounting system so that management can compare budgeted results to actual performance during the current fiscal year.

Vintage’s managers require data on sales, production, and expenses in addition to the budget from the previous year. If the VP of sales predicts a 20% rise in revenue, the VP of operations must budget for more material purchases and significant labour expenditures.

Even though the yearly budget process begins before year-end, it might not be finished until the first few months of the following year. Because of this schedule, the year-end closing involves more significant labour.

Conclusion

Businesses preparing for the upcoming financial reporting season should consider how economic difficulties will impact going concern assumptions and how to maintain transparency in climate change disclosures while monitoring the effects of Pillar Two model regulations. In the ever-changing economic landscape, monitoring these shifts, managing resources wisely, and satisfying changing stakeholder and regulatory needs for accurate financial reporting is critical.

Master your year-end financial reporting with precision and confidence. Visit our website www.enterslice.com and let us help you streamline the process and stay ahead of every challenge by starting now.

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