As we get closer to the end of 2012, it is time to start thinking about the end of the year accounting close and the yearly visit from the accountant. In anticipation of the upcoming year-end, below are a few items to consider as you plan your year-end accounting close.
Start planning the year-end inventory – If you have inventory, chances are a full physical inventory is performed on an annual basis. The accountant may observe your physical inventory and perform independent counts. In order to ensure a smooth year-end inventory it is often useful to start planning the specific dates and having open dialogue with your accountant prior to the inventory. This will ensure that you are able to identify any reports that may be needed in advance versus the day of the inventory.
Begin requesting information for any multiemployer plans – ASU 2011-09 Compensation – Retirement Benefits – Multiemployer Plans is effective for nonpublic entities for periods ending after December 15, 2012. As a result, a number of additional disclosures are required for entities that participate in multiemployer plans. These disclosures include the plan names, indication if the employer’s contribution was greater than 5% of the total contributions made to the plan, as well as disclosure relating to the funding status of the plan. This information may need to be requested from the plan. If multiple plans exist, the information will need to be obtained for each plan. As a result, management may need to contact plan management to receive this information.
It is important to note that these disclosures will be required regardless if a compilation, review or audit is performed. Further, this information is required to be disclosed within the financial statements for both the current and the prior year.
Identify any uncollectible accounts – As the economy continues to be unstable, customers that were strong payers in the past may be experiencing cash flow problems or may have stopped paying altogether. As a result, an adjustment may be needed to the allowance for doubtful accounts or the account may need to be written off completely. The identification of these types of customers prior to year-end will ensure that there are no surprises when examining outstanding receivables at year-end.
Any debt covenant issues – If any new debt financing agreements have been entered into during the year, there may be new debt covenants that will need to be tested in the current year. Oftentimes, these debt covenants are required to be measured on an annual basis. If a company is in violation of a debt covenant, management may want to discuss with their financial institution to determine if a bank waiver may be obtained. If a waiver is unable to be obtained, the debt may have to be classified as current on the face of the financial statements.
Start compiling information needed for the audit – Accountants will generally issue a listing of materials that will be needed for the audit, review or compilation. These listings are more commonly referred to as a “PBC listing.” These items may include board minutes, account reconciliations and the preparation of confirmations to be mailed by the accountant. In the current year, there may be a number of new items related to ASU 2011-09. Probably the most important thing that the accountants will need will be the trial balance.
It is important to note that open dialogue with the accountant will ensure that the year-end procedures performed will progress smoothly and that any reporting deadlines that you may have will be achieved.
Aaron Kofira is a partner based out of our Rochester, NY office.