How to Troubleshoot Year-End Close Breakdown
The year-end close is a critical process for any firm. It is the time of year when the accounting team is preoccupied with general accounting tasks as we strive to complete the year's transactions and close the books without errors. As easy as it is to say, it is practically as difficult to do, and that's why it is a stressful time for accountants and bookkeepers. The year-end close is sometimes complicated by unforeseen technical or non-technical challenges that appear out of nowhere and cause the process to be delayed.
Let's look at the common problems the account team experiences during the year-end close and how you can troubleshoot them for a faster and smoother year-end close.
1. Depreciation Calculation Problems
Depreciation errors are the errors that are made in the calculation or reporting of depreciation. There are two main ways to solve depreciation errors.
- File an amended return:
This is the most typical method for correcting depreciation errors. You can file an amended return for any year in which you made errors, but you can only correct errors that occurred during the last three years.
- File a change in accounting method form:
This is a more complicated method of correcting depreciation errors, but with this method, you can resolve errors from any year. You must submit Form 3115, Change in Accounting Method, to the IRS.
Here are the steps to follow for resolving depreciation errors using Form 3115:
- Determine the type of depreciation error made.
- Determine the correct amount of depreciation that should have been claimed.
- Submit the Form 3115 to the IRS.
- Pay any overdue taxes.
If you don’t know how to address depreciation errors, you should seek the advice of a tax adviser. They will guide you on the best approach to ensure that you are in compliance with all applicable tax rules.
2. Communication gaps
It may seem to be negligible, but communication breakdowns can also lead to significant year-end close issues. Even a little miscommunication can put you in big trouble or disrupt your year-end close process. Sometimes it might be difficult to maintain track of progress and identify potential difficulties if there is little communication between the many departments participating in the closing process.
To solve this issue, you must set clear communication channels between the various departments. Create a communication plan outlining the important milestones and deadlines for the year-end close. If you notice a communication breakdown or are stuck, you can consult with the responsible team members to solve the issue on the go. This approach not only keeps you out of severe troubles but also alerts your team not to commit the same mistake.
3. Late arriving or incorrect data
It is one of the most common year-end close problems. Late arriving or incorrect data can be a significant issue because it can impact the financial statements of the business. Eventually, incorrect financial statements can potentially divert the company from its long-term goals.
Financial data can be erroneous for a variety of reasons. For example, it could be due to:
Human error: Bookkeepers may make mistakes while inputting data, or they may be unaware of the significance of precise data.
Technical issues: There could be issues with the data entering system, or data could be lost or distorted during the data entry process.
Process Problems: There can be gaps in the data collection process, or the data may not be adequately checked before being entered into the accounting system.
To resolve this issue, you must determine the source of the late or incorrect data. Once you've determined the source of the problem, you can collaborate with the appropriate department to fix it.
Here are some suggestions for dealing with late or erroneous data:
Review the data entry process: Ensure that personnel are appropriately instructed on how to enter data. Also, you need to ensure that there is a standard process for validating data.
Use data validation tools: Data validation tools can help you detect inaccuracies in your accounting data.
Implement a program for data quality management: You must include Procedures for identifying, rectifying, and preventing data errors.
4. Staff burnout
Staff burnout can be a serious issue during the year-end close process. It can result in errors, missed deadlines, and employee churn. That is because the account team passes through a tremendous workload. During the busy year-end, they not only need to crush the deadlines but also need to go error-free regarding the financial data.
Staff may experience burnout during the year-end close for various reasons. Let’s discuss the most common ones:
Increased workload: The year-end close is a hectic time for the accounting team. They may be working long hours and under intense deadline pressure.
Lack of resources: Employees may lack the resources they require to accomplish their tasks effectively. This could involve everything from training to software to basic supplies. This can lead to a lot of back and forth while managing tasks.
Negative work environment: A poor or undesirable working environment can have a significant detrimental impact on the accounting team's performance. Employees may feel undervalued or disregarded if their efforts are not acknowledged.
Here are some specific things you can do to prevent staff burnout during year-end close:
Start planning as soon as possible: Start the year-end close process as soon as possible. This will help you spread out the effort and reduce stress. Your account team gets more time to accomplish tasks.
Delegate responsibilities: If you have multiple tasks to manage, delegate responsibilities and manage the tasks efficiently. Try not to do everything yourself. This approach helps you stay stress-free while crushing deadlines.
Set realistic deadlines: Set deadlines that are achievable. Take frequent breaks. Moreover, you need to encourage your employees to take regular breaks. This will help them stay energized and focused.
Provide assistance: During the hectic year-end close, being a helping hand can motivate your teams and help you achieve more. Be available to employees and provide your assistance. This little act shows that you value their efforts.
By taking these steps, you can assist in reducing staff burnout and ensure a successful year-end close.
5. Breakdown in process
Process breakdown is another general year-end close issue. This might result in delays, errors, and even missed deadlines. Breakdowns in the process might occur for various reasons. These can be:
Lack of documentation: The year-end close process may face breakdown if there is an unorganized approach to managing documents. Poorly documented accounting data can lead to confusion and errors.
Unclear communication: As discussed above, the roles and responsibilities of various team members may be unclear, resulting in gaps in the year-end close process.
Lack of training: If the account team is not properly taught about the year-end close process, it can lead to process breakdowns.
Here are the important steps you may take to avoid breakdowns during year-end close:
Document the procedure: Create detailed documentation of the year-end close procedure. This will help in keeping everyone on the same page.
Clear communication: Ensure that everyone involved in the year-end close process is aware of their respective roles and responsibilities. If there any miscommunication is noticed, you need to report it immediately so before it turns into a significant issue.
Staff training: Educate your account team about the year-end close process. This will help to ensure that their tasks are completed accurately and efficiently.
Use checklists: Using year-end close checklists can be effective in the year-end closing process. It ensures that all process steps are done appropriately.
Put the procedure to the test: To uncover and rectify any potential issues, test the process before the year-end close.
By following these measures, you can help to avoid process breakdowns and assure the success of your year-end close.
6. Regulatory Changes
Unexpected or sudden regulatory changes can have a substantial impact on the year-end close process. These changes, if not addressed appropriately, can cause trouble in the year-end close process, which can have a severe impact on the company's financial reporting and compliance. How to deal with this?
Here are some pointers for troubleshooting the year-end close breakdown caused by regulatory changes:
- Keep up with regulatory changes:
The most important and effective approach is to ensure that you are aware of all regulatory changes that may have an impact on the year-end close process. This includes legislative, regulatory, and industry standards changes. You can subscribe to relevant industry magazines, attend industry events, and follow regulatory agencies on social media to stay up to date on regulatory changes.
- Assess the impact of the regulatory changes:
If you are already aware of the regulatory changes, you must examine their impact on your year-end close process. This includes determining which processes and controls will be affected by the changes. You may also contact legal and accounting professionals about the effects of the changes. This approach lets you go smoothly with the year-end closing process without getting into any legal trouble.
- Create an effective strategy:
Once you are done with assessing the impact of regulatory changes on the year-end close process, you must plot a strategy for responding to these changes.
Apart from these common problems, there might be a number of other potential year-end closing problems that can occur. If you are facing a breakdown in your year-end close, you must address them and resolve the situation as quickly as possible by identifying the root cause.
The bottom line:
By following the given guide, you can troubleshoot most of the year-end close problems and ensure that your books are closed accurately and timely. This will help to protect your business from financial risks and ensure that you are compliant with all the applicable regulations.