Nearly 15 years ago, Dr. Atul Gawande’s bestselling book, “The Checklist Manifesto,” laid out the increasing importance of checklists as a means of handling complexity. While his examples included airline pilots, his own surgical team and the M&Ms ordered for each new concert venue by the legendary band Van Halen, he could easily have filled out his story with accountants who handle leases. The approaching close of each year requires such accounting teams to check a large number of boxes. Missing even one could lead to trouble.

A solid checklist helps Odessa’s accounting team stay on track. This article covers the broad outlines of this checklist, in the hope that it may help yours, too.

Year-End Close Process

It’s always best to finalize a company’s financial records at the end of its fiscal year. The complex, time-consuming process requires coordination between many different departments within a company. When done right, it ensures that the company’s financial records are accurate, which is, of course, crucial for financial reporting, tax compliance and strategic planning. According to CFO.com, an annual close takes an average of 24 days to complete.

As in most areas of our lives, doing a little bit on a regular basis reduces the size of the task at the end. Developing and incorporating a process for a consistent month-end close will make the year-end close easier and faster.

Benefits of Consistent Month-End and Year-End Close Processes

Following consistent close processes enables you to identify discrepancies in financial statements early — giving you much-needed time to address them. Such consistency also enables you to generate accurate financial data, eliminate potential fraud and enhance internal controls. Consistency in your monthly practice will save you time in the long run by reducing the time you need for your year-end close. And, if you do find areas that need improvement, you’ll find them in time to make the improvements matter — again improving your, and your company’s, year-end experience.

Steps Involved in Year-End Close Process

It’s important to lay out a plan first. Don’t start your process until you’ve documented exactly what’s required to properly close out the fiscal year. Next, develop a checklist of all the tasks that need to be performed. Lease accounting has a number of moving parts not found in other areas of business. A good checklist can help your team track everything it needs to track.

It’s important to keep abreast of any regulatory changes, of course. Evolving regulatory policies and changes to ASC 842 may impact your financial statements and/or financial-statement disclosures. It also helps to reconcile balance-sheet accounts regularly. Make sure that the transactions that make up the balance in the general ledger are accurate and supported. Be sure to research and resolve any discrepancies.

There are a few items that lessors, in particular, may want to include on a checklist. Be sure to record cash and reconcile bank accounts to the general ledger. Remember to audit fixed assets. Keep track of Inventory — for example, determine if all equipment is valued appropriately. Review the net investment in lease accounts.

In addition, be sure to record all accounts payable activity. Note all unidentified or unallocated cash. Review revenue and expense accounts. Prepare financial statements. Review income tax reporting. Prepare for the financial audit.

Each of the points in the last two paragraphs has its own specific considerations. Odessa has listed them in its complete checklist, which is available here for free download: https://www.odessainc.com/year-end-lease-accounting-checklist.