Could someone explain what finance closing process is? I passed CPA and have audit experience but I don’t really understand how industry accounting cycle works :( What does it mean to close the books? Are they referring to 12/31 deadline? Do all JE have to be recorded within this date? How does one close it?

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Hm, how was this glossed over in your accumulated experience? Like did you just work on reconciliations?

Based on the questions posed, this requires a lengthy response to ensure an adequate understanding of core concepts.

likefunny

Yeah, you're thinking of the income summary account from a manual system to post to RE. Most of the true "close" procedures from an accounting standpoint are all automated [i.e. the close period button rolls up the permanent accts for the next period]. This is where knowing paper actg helps out [any boomers on here remember the "worksheet" between GL and TB?] . Nowadays, a close is basically focused on getting all the actg done, JE to Rptg, and then performing the period end "control" procedures like reconciliation, review etc.

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I have heard this commonly referred to as the financial close reporting process (FCRP). It’s performed at the end of each month by accounting to make sure all JEs for the month are properly recorded and reviewed, acct reconciliations performed, consolidations from subsidiaries roll up properly etc (especially for quarter-end); to close the books means there’s no open transactions or unprocessed JEs existing for the month.

Usually the controller or cfo holds the power to close the period and have the option to prevent back-end posting

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This is so helpful, thank you!!!

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Start with reading the PEFR - period end financial reporting walkthrough (or your firm’s acronym version of it). That’ll cover you from a PA audit perspective, which granted will be high level documentation over what the client performs.

Come back afterwards with any remaining questions 👍

likesmarthelpful

Good idea PwC. At EY it’s the FSCP walkthrough and should be in your file at B00 or B01

Industry experience here, plain and simple we have reporting deadlines, in most cases there is a “mother ship”, I.e. a parent company, affiliate, lender, or peer performance group we need to send financials to. It really is making sure all entries are posted adjustments are made and revenue booked in the correct period...in some cases it could even be prompted by a requirement to calculate and pay people periodic bonuses. In any event think of all the things the business would want/need to get into the month and that’s what we are closing...some are easy, others not so much, so you might be able to see how a client could double book utilities or something stupid in the same month...non-cpas struggle with cash to accrual basis accounting as well as proper period recognition and rev rec.

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What kind of company’s did you audit? I guess I understand not knowing every minuscule detail, because you didn’t actually do it, but you do understand at a high level what it is, right?

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