For fixed assets, it must be reviewed during the closing process whether the value of all assets put into use during the current year has been posted from the construction-in-process (CIP) GL item to the capitalized asset gross value GL item corresponding to the asset. If depreciation has been accounted for, is it shown in the accumulated depreciation GL item corresponding to the given asset? During the closure, we recommend checking whether the increase in the current year under the accumulated depreciation GL item related to account class 1 is equal to the current year's balance of GL item 57 shown in expenses.
While preparing the reports, it is essential that the value of the gross, net, and accumulated depreciation is shown for the fixed asset in the analytical sub-ledger must equal the year-end balance of the corresponding GL accounts, as these relationships will form the basis for the tables of fixed assets movements in the supplementary appendix.
Value of inventories
In order to properly support the reporting, it is essential that the value of the inventories be shown in the balance sheet as an appropriate amount. If the company uses an integrated accounting system set up with appropriate professional competence that is furnished with quantity and value record keeping, then the value of an inventory is either passed automatically or posted from the inventory keeping module to the general ledger. In this case, it is inevitable to make a quantitative review of the inventories, which must also be effected in the program. If the company does not have an inventory management module linked to the accounting program, it is essential to post the year-end value in the inventory management module unaltered to the general ledger. For inventories, it is important that the value of uninvoiced intermediary services must also be posted to the inventories.
In the balance sheet, only items accepted and confirmed by counterparties may be shown under the trade receivables. Receivables denominated in foreign currencies must be converted during the reporting process at the exchange rate applicable at the balance sheet date and shown in the report accordingly. If a partner has an overpayment, such overpayment must be shown in the balance sheet under other liabilities. When recording the depreciation related to trade receivables, and at the reversal of such receivables, the requirements of the company's accounting policy must be observed.
For cash resources, it is essential to properly document the balance at the balance sheet date. To achieve this, minutes drawn up as part of an itemized cash register clearance must be presented for cash, and a bank statement issued for the balance sheet date for bank accounts. In the case of an audit, the auditor will also request a balance sheet statement certified by the bank, which should be obtained for the closing process. For cash resources denominated in foreign currencies, it is essential that the transaction must be recorded in the books at the appropriate exchange rate, and that they must be revalued at the exchange rate applicable on the balance sheet date. Here again, the exchange rate set out in the accounting policy will apply
For both fixed assets and financial instruments denominated as securities, it is important that the year-end balance must be properly supported. For loans and credits, this may be done through the presentation of the balance confirmed by the partner, while for ownership interests, the reports of the companies owned may be used. For listed securities and ownership interests, their price at the balance sheet date can be relied upon.
Equity, subscribed capital
For the equity, we recommend checking the amount of the subscribed capital against the amount shown in the certificate of incorporation, especially if the accounting staff is not immediately notified of changes in the subscribed capital.
The previous year’s after-tax profit must be posted to the retained earnings in all cases.
If the company has purchased fixed assets on account of the development reserve, an itemized review of the balance of the committed reserves is also required. If the owner decided at the acceptance of the previous year's report to pay dividends during the current year, this must be shown in the books indicating the date of such decision.
Provisions may include mandatory, statutory provisioning arrangements, as well as those of the company’s choice. For both provision types, the availability of appropriate documentation is essential, and when provisions are created, their future release should not be neglected either when preparing reports.
Suppliers’ closing tasks are very similar to those detailed for customers. When preparing reports, supplier overpayments should be posted to other receivables on the balance sheet. For both customers and suppliers, it is necessary to show receivables from and liabilities to affiliates on separate balance sheet lines in the balance sheet related to the annual report.
For loans and credits shown under both the assets and liabilities, the parts due in the year following the current year of installments due in the following year must be shown on the balance sheet under the current items. These items must be posted from the non-current to the current items in all cases.
Wages and taxes
During the year-end clearance of wage accounting, do not forget that, if the last monthly wage has not been paid in the current year, the balance should normally equal the amount of the first wage payment following the current year.
For taxes paid during the year, the balances adjusted for the balance sheet date registered with the tax authorities should be used as the basis during the closing process, and the balances shown in the general ledger should be adjusted to these. If the company registers charges and payments under separate GL items for each tax type, these should be cleared during the closing process to allow easy reconciliation.
Before the accounting of taxes on profit, all tasks allocated during the closing process must be completed, and such taxes must be calculated and determined based on the pre-tax profit considered final. However, during the calculation, it must be ensured that the calculation and accounting of the local business tax must always precede the calculation and accounting of the corporate income tax.
During the reconciliation of accruals, whether assets or liabilities, it must be checked if the accruals created in the previous year have been reversed.
It is also important that, for accruals affecting multiple years, if the accrual has been created in a foreign currency, then the unrealized exchange rate difference at the end of the year must also be accounted, similarly to all receivables and liabilities in foreign currencies. People tend to neglect this during closing processes.
Profit and loss accounts
As regards profit and loss accounts, we recommend taking a brief look at items with an unusual balance during the closing process. That is, if a revenue account shows receivables turnover or balance, while for a cost or expenditure, the receivable balance is worth looking at.
When reconciling profit and loss accounts, it is advised to consider the following questions:
- If a balance is attached to the net revenue on sales, is there any associated and accounted cost, intermediary service, or inventory sale?
- If the company has fixed assets, is there a balance for the depreciation cost account? Furthermore, if the sale of tangible or intangible assets has occurred, have the associated items been shown in the other income or other expenses accounts? For financial instruments, these should be shown among the income from operations.
- For fixed assets and inventories, is the value of any surplus, deficit, or scrap shown in the corresponding profit and loss accounts?
- If taxable in-kind benefits occur at the company during the year, are the related other employee benefits also shown on the profit side?
- For in-house production or manufacturing, does the balance of capitalized own performance appear on the profit side?
- If there are receivables and liabilities denominated in foreign currency, are they revalued cumulatively on the balance sheet date?
Finally, it is advised to pay attention to the legal adequacy of the report format, as we have often seen that a company was no longer eligible for simplified annual reporting, but this was revealed during the audit only. Furthermore, as part of the final “touch”, it is worth reviewing the basic equalities once again, for which the online reporting and form filling (OBR) system provides some support and control.