Celebrate New Year’s Eve, close process begins 

Once Christmas has passed and New Year’s Eve has been celebrated, from a financial point of view, a complex and stressful process begins in companies in terms of workload and importance of the tasks to be carried out: consolidation and close process. 

Accrual accounting, the main principle 

The fiscal year of many companies has ended, so they have to prepare the accounting closing. This involves carrying out all the normal month closing processes, reviewing potential cutoff errors, evaluating and ensuring that all income and expenses correspond to the appropriate fiscal year, whether 2023 or 2024. Therefore, it must be ensured that no income or expense that is calculated or for which an invoice has arrived in 2024 is correctly allocated in fiscal year 2023 according to the accrual principle, by which transactions are recorded in accounting at the actual moment in which they were carried out, and not at the payment date (actual versus monetary transaction priority). The same must be reviewed for those transactions that really must be classified in 2024. 

Several financial areas of companies are involved in this process, such as the accounting and controlling areas. This is why communication between the two departments has to be fluid, constant and transparent, so that risks are mitigated and errors are reduced as much as possible, without any material mistake, in any case. 

Public information 

Furthermore, it must be considered that these are the data that will appear publicly. Although there are companies that are not required to report quarterly or even semi-annual information, annual reporting is mandatory for all companies, even more so for listed companies or those that, for any other reason, must make public their financial data. Therefore, by making this information public in your annual reports, this data becomes much more important. The balance sheet data, profit and loss account, cash flows, changes in net worth and the information that appears in the report must be true, and to this end, it must be recorded and reviewed internally in an appropriate manner and, where needed, be audited by external parties. 

These processes are a top priority for a company, and even more so for its accounting and controlling departments. 

Consolidation process 

Furthermore, a complication is usually added to this in relatively large companies, which is the consolidation process. 

When there are several companies that form a business group, the dominant company has the obligation to present consolidated information, which is not only grouping or adding all the companies, but certain consolidation accounting adjustments must be made, such as the elimination of transactions or balances outstanding between different companies of the group. For example, if one company in the group has lent money to another, this effect on the Assets of the first and the Liabilities of the second must be eliminated, since otherwise it would be duplicated from a group point of view. If not, companies could lend money between group companies ad infinitum, artificially increasing their balance sheets. 

Therefore, each company will have its corresponding Asset (credit) and Liability (short and long-term debt) registered, but at a consolidated level, this will not appear. 

The same occurs with income and expense transactions between group companies. If companies sell products or provide services to each other, they could end up having much higher income figures than they actually have, and that is why these inter-group transactions should be eliminated. 

In the consolidation process, the margin with which companies in the same group provide services or buy and sell products must also be analyzed, since they could be reducing or increasing their profits to pay less taxes. 

Another task to be done in the consolidation process for many companies with a relatively large size is for all countries to communicate their transactions correctly to headquarters. Without this, the information would not be complete, since they are part of the group and there are transactions and balances between different companies of the group. 

Personnel and software, the key of a successful consolidation and closing processes 

Although it is important to have a highly professionalized and prepared team to carry out these accounting and controlling tasks, such as the accounting close and the consolidation process, carrying out appropriate selection processes or contracted chartered financial analysis that can perform adequate financial analysis, another key element to success in these processes is having good accounting management software. 

Oracle EPM 

One of the most suitable is Oracle EPM, which includes the Financial Consolidations and Close process under a subscription contract. This tool provides a simple and quick deployment for users who want fast implementation with minimal IT support. Also, it provides a user-friendly and intuitive interface, as well as built-in functionality for consolidation and close process tasks. 

This software can improve this complex process, since it allows you to schedule processes, automate cash flows, facilitate external audits, predefined dimensions for detailed analysis, etc. 

Having software like Oracle EPM, together with qualified personnel for these tasks and who knows in depth the use of this tool, can lead to financial analysis that, beyond facilitating the financial understanding of the company, manages to mitigate as many errors as possible and reduce its quantitative impacts on the company’s financial statements. 

Once all the processes have been carried out, companies generally begin to prepare the external audits and, in parallel, the financial statements to be published or recorded, which is much easier with the templates and tables offered by software such as Oracle EPM. Generally, with these types of templates, it is much easier to understand and prepare the financial tables and annexes of these formal documents.