As year-end approaches, taking proactive steps now helps set the stage for a smooth and efficient close. This guide highlights actionable steps and focus areas to help you get ahead of year-end challenges and position your financial reporting for success
Incorporate Recent Accounting Standards Updates (ASUs)
Several ASUs are effective for fiscal years ending December 31, 2024, and will significantly impact reporting requirements. If your company has not yet adopted these updates, now is the time to take action.
ASU 2024-03: Enhanced Expense Disclosures
ASU 2024-03 is effective for fiscal years ending after December 15, 2024, for private companies, with early adoption permitted. Companies with a December 31 year-end must comply with the new disclosure requirements for their 2024 financial statements.
What You Can Do Now:
- Review Expense Classifications:
- Evaluate how expenses are currently classified (by nature or function) and identify gaps in detail.
- Ensure significant expense categories like salaries, benefits, and marketing are accurately captured.
- Update the Chart of Accounts (COA):
- Add sub-accounts or modify existing accounts to track required expense details.
- Align the COA with the new disclosure format to avoid year-end adjustments.
- Reclassify Prior-Year Data:
- For comparative statements, reclassify 2023 data to conform to the 2024 presentation.
- Document assumptions and processes for consistency.
- Draft Enhanced Disclosures:
- Prepare sample notes with detailed breakdowns of significant expenses.
- Include explanations for material changes or trends for stakeholder clarity.
- Engage Teams:
- Collaborate with finance, HR, and procurement to gather detailed data for key expense categories.
ASU 2024-01: Profits Interest and Stock Compensation
ASU 2024-01 is effective for fiscal years ending after December 15, 2024, for private companies, with early adoption permitted. Companies must apply this guidance to their 2024 financial statements, addressing equity-based incentive awards such as profits interests.
What You Can Do Now:
- Review Compensation Agreements:
- Identify profits interest awards or similar equity-based compensation issued during the year.
- Ensure proper documentation exists, including valuation assumptions and vesting schedules.
- Engage Valuation Specialists:
- Determine the fair value of profits interests at the grant date.
- Confirm valuation methodologies align with ASC 718 requirements.
- Update Financial Reporting:
- Develop detailed footnotes explaining the nature and valuation of equity awards.
- Clarify how expense recognition aligns with the updated guidance.
- Coordinate with Tax and Legal Advisors:
- Address potential tax implications for recipients of profits interests.
- Ensure compliance with accounting and legal requirements.
- Communicate with Auditors:
- Validate the classification and valuation of awards with auditors.
ASU 2023-09: Improved Income Tax Transparency
ASU 2023-09 is effective for fiscal years ending after December 15, 2024, for private companies, with early adoption permitted. This means that companies with a December 31 year-end must implement the standard for their 2024 financial statements.
What You Can Do Now:
- Evaluate Existing Tax Disclosures:
- Review current footnotes for deferred taxes, income tax provisions, and uncertain tax positions.
- Identify areas requiring additional detail under ASU 2023-09.
- Gather Detailed Tax Data:
- Collaborate with the tax department to collect data for enhanced disclosures.
- Ensure qualitative explanations of material tax items are prepared.
- Update Disclosure Templates:
- Revise templates to align with the new footnote requirements.
- Include qualitative and quantitative details for transparency.
- Engage Auditors and Tax Professionals:
- Share draft disclosures with auditors to validate compliance.
- Address gaps in data and methodologies proactively.
- Prepare for Materiality Considerations:
- Prioritize disclosures for significant items, ensuring clarity and consistency.
Review and Update Your Chart of Accounts
Preparing for ASU 2024-03 may require adjustments to your chart of accounts (COA) to capture granular expense details. By revising account structures, creating sub-accounts for key expense categories, and training staff on the updated COA, you can align your internal data with the enhanced disclosure requirements.
Address These Now to Avoid Year-End Headaches
Don’t let avoidable mistakes derail your year-end close. Follow up with your team now on these essential accounting tasks to address foundational issues before they escalate into bigger problems. Tackling these areas early reduces the risk of last-minute surprises and helps keep the close and audit processes on track.
- Account Reconciliations:
- Reconcile all bank, intercompany, and other significant accounts before year-end.
- Investigate and resolve discrepancies promptly.
- Accounts Payable and Receivable Cleanup:
- Review aging reports and follow up on overdue invoices or payables.
- Write off uncollectible receivables and update bad debt reserves.
- Inventory Valuation and Adjustments:
- Schedule and conduct a physical inventory count and inform auditors so they can schedule their observations.
- Identify obsolete or slow-moving inventory for write-offs or adjustments.
- Fixed Assets and Depreciation:
- Review fixed asset additions to ensure proper capitalization.
- Update depreciation schedules to reflect year-end balances accurately.
- Tax Preparation:
- Collaborate with tax advisors to reassess deferred tax balances and identify potential credits.
- Begin compiling documentation for tax returns.
- Review Accruals and Prepaids:
- Verify accrued expenses are complete and reflect all obligations incurred during the year.
- Reconcile prepaid expenses and ensure allocations are applied to the appropriate periods.
- Deferred Revenue and Expenses:
- Confirm deferred revenue accounts accurately reflect future obligations.
- Ensure deferred expenses are allocated to the correct reporting periods.
- Related Party Transactions:
- Review intercompany and related party transactions for accuracy and proper documentation.
- Begin preparing necessary disclosures for financial statement footnotes.
- Supporting Documentation:
- Organize reconciliations, schedules, and other backup documentation for key accounts.
- Review supporting materials auditors may request and ensure they are complete and accessible.
- Debt and Lease Compliance:
- Verify compliance with loan covenants and prepare supporting evidence.
- Review lease agreements to ensure terms are accurately reflected in the financials.
Engage Specialists for Complex Reporting Areas
Engaging experienced specialists early helps prevent delays in addressing complex financial reporting areas, such as income taxes, valuations, and real estate.
What You Can Do Now:
- Identify Key Areas Needing Expertise:
- Review complex areas like goodwill impairment, cost segregation, and deferred taxes to assess whether external expertise is needed.
- Engage Specialists Early:
- Schedule consultations with valuation experts, tax advisors, and audit specialists before year-end to address challenges proactively.
- Prepare Supporting Documentation:
- Compile relevant data and calculations (e.g., purchase price allocations, impairment tests) for specialists to streamline their review.
Address Prior-Year Audit Findings
What You Can Do Now:
- Review Prior Audit Communications:
- Analyze last year’s audit reports to identify significant deficiencies, material weaknesses, or other comments requiring attention.
- Implement Corrective Actions:
- Address identified control gaps by implementing practical and sustainable measures. Document these actions thoroughly for reference during the audit.
- Conduct Pre-Audit Testing:
- Perform internal testing of remediated controls to ensure they operate effectively and consistently.
- Communicate Updates Early:
- Provide auditors with detailed updates on remediation efforts, including evidence of corrective actions and results from internal testing.
- Plan for Follow-Up Testing by Auditors:
- Engage auditors early, giving them sufficient time to validate the effectiveness of resolved findings and confirm no recurring issues.
Collaborate Across Teams for Year-End Success
A successful year-end close requires alignment across finance, tax, and operational teams.
What You Can Do Now:
- Hold Cross-Functional Meetings:
- Schedule regular check-ins with department heads to ensure alignment on year-end goals and deadlines.
- Standardize Data Collection:
- Develop templates or processes to gather consistent financial and operational data from different teams.
- Train Staff:
- Train staff on updated processes or standards and confirm that all required company training is completed and current
- Engage Auditors Proactively:
- Begin discussions with auditors about potential risk areas and timelines for audit readiness.
Wrap-Up
Proactive preparation sets the stage for a smooth year-end close. By tackling key tasks, involving specialists early, and confirming processes are current, you can avoid errors and last-minute issues. Starting now prevents unnecessary challenges and helps position your company for a strong start to the next fiscal year
For a step-by-step guide on adopting ASU 2024-03, including detailed requirements, practical examples, and actionable steps, see our Detailed ASU Alert. This resource provides everything you need for a smooth transition and compliance with the new standard.