A reader of my recent, year-end closing blogs asked me to write about surprises I have found when helping clients close their fiscal years. There are many. This particular blog is a tale of old adjusting entries, the unfinished, the unseen, and the unforgiveable.

The Unfinished
The most common issue I encounter is: The failure to book previous fiscal year adjusting entries. Year-end adjustments are journal entries made to various general ledger accounts at the end of the fiscal year, typically by a firm’s outside CPA. These adjustments help create a set of books that is in compliance with GAAP.  A CPA usually sends a list of adjustments to the client, often with a link to, or copy of, its just-completed tax returns. These suggestions can be overlooked.

The Unseen
It is not unusual for companies to switch accounting programs effective as of the start of their fiscal years, often January 1st. Depending on the programs involved and, most importantly, the client’s expertise, prior year information can be lost, netted, or severely abridged. Prior year adjustments, booked or otherwise, are no longer visible.

The Unforgiveable
Unfinished or unseen adjustments are commonplace. But what if a company switched accounting programs mid-year?  And did so on an odd date like, say, July 14th?  Bastille Day. And what if that same company fired its Controller for cause (malfeasance) early in Q1 tax-prep season the following year . . . before seeking my help?  That’s when year-end closings become memorable. That is what happened with Company ABC.

There are reasons why companies shouldn’t switch accounting programs mid-month. For one, there are no month end statements to use for reconciling. Instead, one is left to recreate daily balances using exported .csv and .pdf transaction exports. It is time consuming. It was even more so when Company ABC switched from NetSuite to QuickBooks Enterprise without downloading all the necessary, (July 14th) Financial, General Ledger and related reports before closing its NetSuite account. Did I mention that Company ABC had approximately 500 inventory SKUs? It became an extended exercise in forensic accounting. Essentially, two closings: July 14th and December 31st.

This three-month undertaking required that we investigate historic financial results as well.  Among other issues, we found a history of unexplained, prior year, December 31st adjusting entries. These “intercompany expenses” were not captured in the books of the related real estate company. Apparently, the now departed Controller was betting these transactions would never be scrutinized. The owners were shocked. Ultimately, Company ABC amended prior year tax returns, paying back taxes and penalties.

Proper corporate controls and third-party reviews could have prevented all three of these situations. Too often, I see firms whose CFOs, Controllers, and even outside CPAs have grown complacent. My advice?  Shake things up. Demand more of your CPA or interview a new one. A fresh set of eyes can be valuable; consider contacting Worldwide Local Connect.


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