The Year-End Book (#199)
/In this podcast episode, we discuss the year-end book, which is a summary of the results of the fiscal year and supporting information. Key points made are noted below.
Contents of the Year-End Book
The year-end book includes the year-end financial statements and trial balance, which constitute the results of the year. The supporting information starts with the general ledger, and also includes the detail for the ending asset and liability balances. This means the accounts receivable aging, accounts payable aging, the ending inventory report, and the fixed asset register. All of these supporting documents should have totals that exactly match what’s in the general ledger.
The Year-End Book as Evidence
In short, the year-end book is evidence. For example, the company may receive a buyout offer, and the buyer wants to see the financial statements for the past couple of years, plus the information that supports the financials. If so, hand over the year-end book, and that may be pretty close to all they need. Or, the owners may want to take the company public, in which case the financials for the past couple of years will need to be audited. If so, the first thing the auditors will ask for is the year-end book, which will be the starting point for their audit.
Always print the book, since electronic files could be lost.
Book Preparation Issues
Do not prepare the book until the auditors have completed their year-end work, because they may have some adjusting entries to make, which have to be recorded as journal entries for that fiscal year. Which impacts the general ledger, and the trial balance, and the financial statements. So if you already printed out everything for the book, now you have to do it again. To get around this problem, put the year-end book at the very end of the schedule for the year-end closing process.
Ensure that what you’re including in the year-end book for the current year-end matches the information stored in the preceding year-end book. There might be an extra report or two in the older book that seemed like a good piece of record keeping to have – maybe a list of operating statistics. If so, be consistent and keep right on storing the same information. It might come in handy again.
Storage of the Year-End Book
Treat the year-end books like permanent documents. So, do not dump them into an archives box and send them to the warehouse. Instead, they go into a high-quality binder that’s well-labeled, and they’re stored in the safest place you have. And when you loan them out, keep track of who has them.
The Journal Entry Binder
If the auditors are reviewing the books for a prior year, you can expect them to ask about why certain journal entries were made – and you’ll have no idea, because the entry was made so long ago. To handle this situation, there should already be a journal entry binder, which is being updated with documentation for all of the journal entries as they’re made throughout the year. At the end of the year, wait for the auditor’s adjusting entries, add them to the journal entry binder and store this binder with the year-end book. By doing so, the auditors will have a lot of high-grade information that’s easily accessible in one place.
Otherwise, you end up in an odd situation where some of the reports don’t match what’s in the general ledger, or the financial statements, or the trial balance. And you won’t discover it until a year later, when the next audit starts, and the auditors can’t figure out why their beginning balances don’t match what’s in the year-end book.
Matching to Auditor Records
A good way to make sure that the year-end book matches the auditor’s records is to ask them. Just send over your trial balance – and ask them to compare it to what they have. If there’s a problem, then fix it right away, before too much time passes, and no one remembers what happened.
Parting Thoughts
In short, give the year-end book some respect. Assemble it carefully, as the absolute last year-end task, cross-check the information in it, and then store it as carefully as possible.