ANNUAL CLOSING

CHECKLIST By Bojan Radojicic

GENERAL EQUITY AND OTHER LIABILITIES
GENERAL EQUITY
Make sure the accounting policies are aligned with latest changes of GAAP (IFRS, local GAAP, US GAAP etc..). Reconciliation of GL equity accounts with amount of subscribed equity in the official state register.
Make sure you made a corrections given in the latest auditor’s opinion or management letter. Equity amount is matched with the amount declared in Founding Act / Articles of Association
Perform a variance analysis between actual financial statement figures vs. budget and investigate inconsistences if any. Subscribed equity reconciled with official business register
Calculate periodical ratio numbers and investigate inconsistences if any. Retained earnings / accumulated loss matches with balance sheet data
Check KPIs: DSO; DPO; DIO; Gross profit margin; EBITDA margin; Net profit margin; Current liquidity ratio Statement of changes in equity reviewed
Perform EBITDA adjustment if needed (e.g. reclassify non-recurring items below EBITDA). Reserves examination if any
All internal accounting acts reviewed (accounting policies etc.)
Auditor management letter points reviewed LOANS AND INTEREST EXPENSE
Tax authorities findings reviewed LOANS AND FINANCIAL EXPENSES
Compare official financials and reports for management Loan balances reconciled payment plans - loan schedules
Findings of other external financial or tax consultants reviewed Balance reconciliation with banks per all accounts.
Review business plan and budget Reclassify loan parts that are due in one year to short term financial liabilities.
Match interest calculated in banks’ payment plan and interest posted in books.

ANALYTICAL PROCEDURES Confirm that unrealized FX are posted for loan accounts in different currencies.
ANALYTICAL PROCEDURES Creditor list per funding amount and balance prepared and analyzed
Actual vs comparable period figures differences investigated Loan agreements, mortgages and other debt documents reviewed
Review of key ratio numbers and changes in ratio numbers Interest expenses properly accrued based on payment plans
Net working capital reviewed
Budget achievements reviewed and differences investigated ACCOUNT PAYABLES
Review monthly movement in sold quantities, revenues and margins ACCOUNT PAYABLES (AP) AND EXPENSES
EBITDA adjustments review and check AP sublegder reconciled with AP GL accounts.
Cash flow statement calculation and verified AP balances reconciled with vendors.
Net profit margins and EBITDA margins reviewed Incoming invocies properly documented with relevant evidence.
Compare official financials with management reports Perform accruals for unreceived bills.
Unrealized FX posted AP accounts in different currencies.

PROPERTY
FIXED ASSETS AND DEPRECIATION
PLANT, EQUIPMENT AND IP Annually / monthly movement in AP balance reviewed and explained
Supplier list per purchase value and balance prepared and reviewed
Property, plant and equipment (PPE) reconciled with GL accounts of PPE. Ageing structure / overdue list of AP prepared and analyzed
Intellectual property (IP) register reconciled with IP GL accounts. Check how much AP balances is reconciled with debtors
Make sure you have relevant ownership documentation for each property. Consider reasons if due liabilities is not paid - (impact on NWC)
If some PPE / IP groups are recognized by fair value make sure you obtain relevant valuation (by licensed valuator). Days payables outstanding (DPO) reviewed and explained
List impairment indicators and perform impariment test for PPE.
Perform an impariment test for IP. OTHER LIABILITIES
PPE write off procedure aligned with accounting policies. OTHER LIABILITIES
IP write off procedure aligned with accounting policies. Check accruals for annually paid services (e.g. insurance, annual licenses, rents, etc..).
Check status and possibly write off PPE and IP items with zero net present value. Review all litigations against company with lawyers and make appropriate provision for expected losses.
Annual PPE inventory performed in line with internal procedures. Review all commitments and contingencies that may occur form business arrangements.
Shortages and surpluses properly posted. Review all litigations against company with lawyers and make appropriate provision for expected losses.
Annual depreciation and amortization properly calculated and posted. Review warranty payments in last periods and make warranty provision for expected losses if needed.
Review lease accounting postings (e.g. IFRS16), match external calculation/models for recognition assets and liabilities with Review of liabilities for taxes, customs and other admin fees
general leger accounts.
Ownership documentation reviewed (e.g. Title deeds)
Useful life for all IP and PPE item groups reviewed OPERATING EXPENSES
OPERATING EXPENSES
Variance between tax and accounting depreciation rates explained OPEX structure analyzed
Movement in IP and PPE balances explained Recurring operating expenses matches with agreements
Check whether GAAP is applied when PPE or IP is acquired and sold (meke sample based test) OPEX variance identified and explained
Review useful life for all IP and PPE item groups Ratio OPEX in revenues calculated and reviewed during periods
Check capital gains/ losses recognition if any Prepaid expenses accrual checked
Check the accruals for undeceived bills and other provisions
INVENTORIES Main supplier contracts reviewed, key elements reflected in financials
INVENTORIES AND COST OF GOODS SOLD COGS share in revenue: changes considered and explained
Inventory register reconciled with inventory general ledger accounts. Insurance agreement reviewed
Prepare aging list of inventories, list of obsolete and damaged inventories. Professional fees expense examined
Inventory impariment test performed in line with accounting policies (e.g. compare cost and net selling price).
Inventory write off recognized in a line with accounting policies.
Work in progres properly calculated and recognized.
INTERCOMPANY
INTERCOMPANY TRANSACTIONS
Annual stock counting performed in line with internal procedures. Reconciliation balances with related parties per all GL accounts.
Shortages and surpluses properly posted. Reconciliation turnover with related parties per all GL accounts.
Make sure IC services are properly documented (agreements, timesheets, fee calculation etc.)
ACCOUNT RECEIVABLES Perform transfer pricing study that confirm the transaction between related parties meets arm’s length principle. (use
ACCOUNT RECEIVABLES external tax advisor if needed).
AR sublegder reconciled with AR general ledger accounts.
AR balances reconciled with debtors (at least 75% balance is confirmed).
HEADCOUNT
PAYROLL AND EMPLOYEE BENEFITS
AND SALARIES
Review aging list of AR, check status of payment after balance sheet date.
Analyze financial conditions and liquidity at overdue AR. All payroll and personal income taxes returns timely submitted and posted.
Perform AR impairment test and post bad debt. Reconcile total posted amounts in GL payroll accounts with external or supporting document / sub-ledger.
Don’t forget to take AR under litigations into account. Match debit amounts on expenses GL accounts with credit amounts on liabilities GL accounts.
Perform bad debt reversal from pervious period if identified. Make sure that bonus accrual is posted.
Unrealized FX posted on AR GL accounts in different currencies. Reconciliation of personal tax and social contributions liabilites with relevant authorities.
Investment in associates reconciled with associate's equity Prepare overview of monthly movements in salaries, personal taxes, social contributions and investigate
Purchase agreements reviewed inconsistences.
Check how well associates is operating, is there impairment needed? Check a variance between actual and budgeted payroll and confirm that is reasonable.

REVENUES FROM SALES

REVENUES Make sure you performed actuarial calculation for severance pay and jubilee awards if applicable.
Make sure you calculated and posted provision for unused annual vacation.
Prepare monthly movements in revenues and margins per key products / business units and investigate inconsistences. Compare Make sure all taxes for employee benefits are calculated and paid in line with local regulation (e.g. cars, health costs
it with budget and last period. etc..).
Prepare monthly movements in quantities delivered and investigate inconsistences. Management labor agreements and typical employee labor agreement checked and reconciled with expenses
Make sure that dispatched products / services to the customer are invoiced in the same period. Annually / monthly movements in salaries balance reviewed and explained
Make sure that quantity and other discounts to the customers are properly accrued. Average monthly salaries analyzed
Purchase orders are matched with delivery notes.
Delivery notes reconciled with sales invoices. INVESTMENT IN ASSOCIATES AND SHARES
Accruals for deferred income is properly recognized. (e.g. selling annual license) INVESTMENT IN ASSOCIATES AND SHARES
Revenues structure analyzed (per product, categories, business units etc.) Investment in associates reconciled with associate's equity
Annually / monthly movement in revenues reviewed and explained Purchase agreements reviewed
Main customers' contract reviewed and aligned with associated revenues Check how well associates is operating, is there impairment needed?
Gross margin analysis done: movement in GM, GM per products etc.. Valuation of shares listed on stocks is properly done
Discounts to customers recognized in appropriate reporting period Check capital gains/ losses if any
Revenues reconciled with sales reports for management
Sales actual vs budget vs. LY analysis performed COMMITMENTS AND CONTINGENCIES
COMITMENT AND CONTINGECIES

CASH AND EQUIVALENTS Litigations and litigations risks reviewed, assumptions of debt litigations reviewed
Contracts that involve payments exceeding material amounts reviewed
CASH AND EQUIVALENTS
Cash on bank statements is reconciled with cash GL accounts. Calculation of potential liabilities based on current contracts
Balance reconciliation with banks per all accounts. Check procedures that company apply when approve material contracts
Confirm that unrealized FX are posted for cash accounts in different currencies. List of guarantees reviewed, check environmental commitments, liabilities, or contingencies.
Interview key stakeholders to gain insights into contingencies

CREDITS TO Bojan Radojicic | FOLLOW ON LINKEDIN POWERED BY: WTS TAX AN FINANCE AND