What Are the Goals of Financial Close?

The goals of the financial close are to enter each new accounting period (whether that be month, quarter, or year) with temporary account balances at zero and to consolidate and produce the financial statements.

What Are Some Challenges Around Financial Close?

Typically, the financial close process is performed manually, and accountants often spend long days and late nights on the tasks involved. There is a lot of pressure put on finance and accounting teams to complete their financial close on a tight deadline.Challenges such as delays, incomplete data, complex data, lack of process, and lack of automation can make it difficult to complete the financial close. Companies that sacrifice speed over accuracy introduce a level of risk, as those that close within a short window often rely more heavily on estimates and accruals which may not be exact. And, if the company is not validating the data, that may expose the company to risk with serious implications down the line.Ready to optimize your financial close process? Unleash your team’s productivity with the only end-to-end financial close solution. Dive deeper into streamlining your financial close reading our whitepaper Fast-Tracking the Path to Financial Close Efficiency & Balance Sheet Integrity.

Financial Close

What Is the Financial Close Process?

Financial close is a process where accounting and finance teams review and reduce account balances before the accounting cycle closes.

The process includes recording and reviewing journal entries for each transaction and activity, reconciling high-risk transactions, and validating the data through balance sheet review and account reconciliations.

When you think about a financial close, the point of all the preparation, review, and analysis is to deliver the financial statements. This reporting stage is where items on the SOX compliance list are checked off and financial statements are consolidated and produced.

This is the goal of the financial close and the last integral step in the process.

What Is the Difference Between Financial Close & Closing the Books?

While many people will use the terms financial close and closing the books interchangeably, it’s important to understand the difference.

Financial close refers to all the financial and accounting processes that occur on a regular basis in a business leading up to, and including, closing the books on the prior month, quarter, or year. So, closing the books is just one part of the financial close.

What Are the Steps to Financial Close?

While companies are all different, there are some key steps in the financial close process:

Identify transactions and record them in a journal
Post to the general ledger
Prepare an unadjusted trial balance
Reconcile debits and credits
Create adjusting journal entries
Run an adjusted trial balance and financial statements
Close the books and generate financial reports

The financial statements generated from the financial close are used by company management for analysis, comparisons, KPI generation, and other assessments of the business’s financial health.

Investors, lenders, and regulatory agencies may also use these statements—depending on the company, it may be required to provide these statements to those stakeholders.