The goal of the executive finance department in any organization should be to produce timely and accurate financial statements at the end of each month. The financial statements are critical as they allow management to not only understand the financial health of the organization but also to make crucial decisions promptly. To reach the point of financial reporting, finance and accounting professionals must take into consideration all details of the many transactions that take place throughout the month. All those details can be efficiently managed when procedures and processes are well thought out. This is where a month-end close checklist comes in.
What is a Month End Close Checklist?
Firstly, month-end closing is an accounting procedure that accountants usually undertake at the end of the month to close the accounting records of the ending month. A month-end closing checklist guides the entire month-end closing procedure. So, a month end close checklist is a fully detailed operating manual with custom-designed or predefined schedules that have to be completed as part of the month-end closing process.
So, the critical question here is – should you build a month end close checklist? Well, you certainly should if you have realized the following:
- There are recurrent accounting mistakes that make it difficult for you to evaluate the company’s performance and financial position.
- Financial statements are not available in good time for the top management to address problems in a timely manner.
- You spend too much time, effort, and money compiling, reviewing, and auditing financial statements at the end of every month.
4 Benefits Of A Month End Close Checklist
1. It reduces accounting mistakes
Due to the large quantity of data involved when creating accounting reports, accounting mistakes, such as errors and omissions, are highly likely to occur. These mistakes can be legitimate mistakes, or they can be attempts to conceal fraud and theft.
When your accountants forget to record transactions, these are errors of omission. Unrecorded business expenses can create big problems, as they can create issues when evaluating the profitability of the business and when filing business taxes.
Since no one is Superman, a month-end close checklist can help your accountants remember things that they might otherwise skip. The checklist can help to reduce accountant mistakes such as data entry errors (i.e., incorrect classification of assets and liabilities) and errors of omission.
2. Improved results from accurate reporting
For any organization and for the people who run it, the importance of accurate accounting reports cannot be underestimated. It’s through accurate reports that the top management identifies performance problems and takes relevant measures to mitigate them. It’s also through accurate reports that creditors, investors, and analysts can evaluate a company’s overall performance and financial position.
Since a month end close checklist helps to eliminate errors and omissions, it can help ensure that critical balances, such as cash and inventory, are accurate from month to month. By implementing the checklist, the accounting department can be in a position to produce accurate financial statements on which all the stakeholders can rely.
3. A checklist increases efficiency
With large quantities of data to process, accountants may take a lot of time to produce accounting reports. However, accountants don’t have the luxury of time as a delay in the issuance of financial statements can result in the management realizing too late that there was a serious performance or liquidity problem that should have been addressed sooner. Therefore, the timelines of accounting information are very important.
Having a month-end close checklist accelerates the time it takes to organize and have internal financial reports available. This is because the accountants will have a well-thought-out list of tasks to accomplish. With a checklist, modern finance professionals will be able to amend their reporting schedule to meet the varying needs of users for different types of information. When the procedure is implemented, the accountants and the management will be on the same page as to when to expect accounting reports.
4. A month-end close checklist makes the company audit-ready
Generally, a company that has a well written and implemented month-end checklist will recognize errors early. When inaccurately posted transactions and errors are identified early on, it will save the accountants time on compilations and reviews at the end of every month.
Besides making your company audit-ready at the end of every month, the checklist will also prove to be beneficial when compiling your annual financial statements. The increased efficiency and accuracy resulting from the implementation of a month-end close checklist reduces the time, effort, and money spent on preparing the financial statement audit at the end of your fiscal year.
A Close Checklist Helps Keep A Company Organized
In conclusion, a month-end close checklist is a useful tool that can contribute to the efficiency of your month-end close process. Since it clearly outlines due dates and each person’s responsibilities of the tasks at hand, it can help keep everyone in the process well organized, saving your company money on compilations, reviews, and audits.