The year-end process involves evaluating, reconciling, and validating all monetary transactions and company records from the past financial year. The purpose is to generate a final financial report as part of the company’s official records. The financial year is a 12-month span that commonly runs from 1 Jan to 31 Dec but can also begin when the enterprise is registered. The auditing team is responsible for collecting relevant information, verifying this data while correcting discrepancies, and later developing financial statements from this information.
Why the year-end process becomes difficult
Common accounting team challenges that make year-end challenging:
Receipts and invoices missing: Missing items can delay the year-end process and other processes during the closing.
Human Errors: Even the most organized accountant struggles with paperwork. Humans make mistakes while processing complex texts in bulk. A minor mistake or a lost document can be costly.
Data entry manually: Time-consuming hand-entering data into spreadsheets is a frequent accounting procedure. Data entry into financial ledgers is more accurate and efficient with accounting automation software.
Miscommunication: The auditing team must track down employees for missing documents or transaction explanations. This causes inefficient email chains with repeated back-and-forths to execute a simple task.
How to make the year-end process smooth in six steps
Improve each Month-End Process
Keeping a close check on your records throughout the year significantly reduces year-end obligations. To enhance the efficiency of your accounting records, take care of critical responsibilities every month. Balance your financial transactions and verify account records for inaccuracies or unpaid debts, which should be your monthly habit. When your fiscal year rolls around, you will not be playing catch-up with your monthly verifications or double-checking dozens of transactions. Instead, the audit team can concentrate on the previous month’s events. If possible, integrate accounting systems with other systems, which improves accuracy and reduces errors and data integrity while eliminating multiple entries.
Develop a year-end checklist
A checklist will constitute the information required for a timely and successful year-end reporting process. A thorough checklist will also include a list of all workers who will receive tax filing services and verification and processing timelines. It will also impose strict reporting deadlines. It would be best if you also established who is responsible for reporting all relevant compensation data, such as income, equity, wages, benefits, and taxes. Developing a thorough checklist should be the first thing before starting the year-end process that will act as a guide. Highlight the critical dates and activities that each relevant staff must complete- the data processing and reporting deadlines and the final closing date are among these items.
Engaging audit committees early
An audit team can help with process direction and best practices knowledge. Internal and external auditors should be brought early in the process to provide support and enhancements to the systems that have been put in place. Throughout the implementation of a process, auditors can provide regular input on progress against a project plan and confront staff on delays. Auditors can also provide information on the quality of the data, processes, and procedures while giving their suggestions. To complete the year-end reporting process, ensure that staff are aware of the requirements and have enough time to submit paperwork. Be prepared for delays, if you have an automation software that constitutes digital receipt recording the better since your staff may quickly upload their paper expenditure receipts quickly.
Verify your data for accuracy
When it comes to the year-end reporting process, accuracy is crucial. Information such as addresses, tax ID numbers, salary, benefits, vacation and sick time, and tax policy that may affect your employees’ paystubs should be verified. Costly error fixing and backtracking can be avoided by double-checking data. Examine cash accounts while making any necessary adjustments. Review prepaid spending and compare inventory accounts to physical stock (if applicable). This phase establishes the current worth of all assets owned by the company. Verify that the recorded transactions match the evidence gathered from credit card bills, bank statements, invoices, and receipts. To be ready for the year-end process, account for every penny.
Apply accounting automation
Modern technology can provide significant support for finance and accounting tasks, given that it is possible to automate almost 98 percent of auditing, accounting, and bookkeeping using technology. Manual entry to bridge technology gaps would otherwise affect the year-end process and viability of the firm’s financial health. Your records and books will improve in quality as you automate. You spend little time correcting errors and more time studying outcomes. Automated accounting solutions improve data accuracy while speeding up report processing.
Prepare the critical statements.
All the information collected and verified in the above steps during a year-end reporting process will be used to prepare three statements: a statement of financial position, a P&L statement, and a cash flow statement. Together, these statements finalize the year-end reporting process. With verified data and accounting automation, these statements will be easily prepared.
Closing the year is a stressful and chaotic event due to looming deadlines, delayed paperwork, and sorting through hundreds of transactions. Overtime work is frequently required to meet speed and accuracy goals, yet tremendous pressure can lead to mistakes. This process can be challenged by missing invoices and receipts, human error, manual data entry, and inefficient communication. These challenges should be controlled to smoother the process by improving each month-end process, developing a year-end checklist, engaging the auditing team early enough, performing information verification, and automating your accounting process.