Chandra Mohan [Managing Director]
Founder / Senior Audit Partner / FCA [Singapore] / FCCA / CPA / MBA
Published 21 October 2024
4 Essential Tips for Year-End Closing
The year-end closing process is a critical phase in financial reporting, encompassing a series of essential steps to ensure your financial statements accurately reflect your company’s financial position and performance over the fiscal year. This process involves finalizing the books and assessing significant areas such as estimates to provide clarity and accuracy in financial reporting.
Here are four key strategies to enhance your reporting process:
-
Assess Your Functional Currency
Understanding and assessing your functional currency, as outlined under Financial Reporting Standard (FRS) 21, is crucial for companies operating in multiple currencies. This ensures financial statements accurately reflect the economic environment of each entity. The functional currency is typically the primary currency in which the entity generates and expends cash.
For companies with foreign transactions, correctly identifying the functional currency is vital to prevent financial misstatements. It is important to annually evaluate your functional currency to ensure it aligns with your business activities.
-
- Key Action: Annually evaluate your functional currency to ensure it aligns with your business activities.
- Guidance: Refer to Financial Reporting Standard (FRS) 21 for comprehensive guidelines.
Functional Currency Assessment
Assessing the functional currency under FRS 21 is crucial for ensuring that financial statements accurately reflect an entity’s economic realities. This assessment is key to maintaining the integrity, consistency, and comparability of reports, particularly for entities operating in multiple currencies.
A company should reevaluate its functional currency when significant economic changes indicate a potential shift. Key indicators include the currency that primarily influences sales prices, production costs, financing activities, and retained receipts from operations.
-
Review Revenue Recognition Policies
A common mistake is recognizing revenue based on invoices, which can lead to inaccuracies. Under FRS 115, revenue should be recognized when it is earned, not necessarily when cash is received or invoices are issued.
Five-Step Revenue Recognition Model: FRS 115 introduces a five-step model for recognizing revenue from contracts with customers. This model is designed to ensure that revenue is recognized in a manner that reflects the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled.
-
- Key Action: Regularly review and document your revenue recognition policies to ensure compliance with accounting standards.
- Guidance: Implement FRS 115 standards to improve revenue reporting accuracy.
Revenue Recognition Compliance
FRS 115’s five-step model ensures revenue is recognized in a manner that reflects the actual transfer of goods or services to customers. The Five-Step Revenue Recognition Model is particularly applicable to industries where companies engage in contracts for goods or services, as it provides a structured approach to recognizing revenue in a consistent and transparent manner.
For small companies, industries such as software development, construction, and subscription-based services would benefit significantly from reviewing and applying this model.
Regularly review and document your revenue recognition policies to ensure compliance with accounting standards and enhance the comparability of your financial statements.
-
Implement Effective Cut-Off Procedures
At the fiscal year-end, cut-off procedures are critical to ensure financial statements are complete and accurate. Year-end financial cut-off procedures, involves verifying that all transactions are recorded in the correct accounting period, avoiding cut-off errors, accurate financial report and facilitating audits.
-
- Key Actions: Focus on sales, inventory, purchase, expenses, and petty cash cut-offs.
- Guidance: Conduct a physical inventory count and reconcile it with accounting records to ensure accuracy, perform sales and purchase cut off.
In summary, year-end financial cut-off procedures are vital for ensuring that financial statements are accurate, compliant, and reliable, thereby supporting effective financial management and decision-making.
-
Make Necessary Journal Adjustments
Use journal adjustments to align revenues and expenses with the correct accounting period. This includes adjustments for any unrecognized income or expenses that have occurred during that period, accruals, estimates like depreciation and provisions for doubtful accounts, deferrals adjust for prepayments and others.
-
- Key Action: Review the aging list of trade debtors and inventory to identify outstanding receivables and slow-moving stock.
- Impact Consideration: Consider the tax implications, including the Estimated Chargeable Income (ECI) submission and GST adjustments.
Journal Adjustments for Accurate Financial Reporting
The main goal of adjusting entries is to record all transactions in the correct accounting period, ensuring accurate profit or loss determination by accounting for overlooked or were recorded incorrectly. This helps businesses avoid common financial reporting errors and maintain the integrity of their financial statements.
By focusing on these key areas and maintaining robust controls, businesses can achieve accurate financial reporting, minimize tax exposure, and reduce audit queries.
Challenges for Small Businesses
Small businesses often face challenges such as finding qualified bookkeepers or accountants, using accounting software proficiently, maintaining accurate records, and ensuring tax compliance.
Our dedicated team offers comprehensive services tailored to your needs, including bookkeeping, accounting, tax compliance, and financial statement preparation, ensuring accuracy and efficiency.
For enquiries, quotations, or clarifications, please contact us at +65 9144 1840 or email [email protected] or [email protected].
Let our comprehensive accounting services take care of your financials, so you can focus on elevating your business operations with confidence.
Disclaimer Clause
The information in this blog is general and not intended as accounting advice. For decisions related to financial reporting standards, accounting matters, or accounts classification, please consult a professional accountant. Neither the author nor publisher assumes liability for any losses or damages arising from the use of this information.