Happy Holidays in Financial Reporting? 5 Things to Do Now to Ease Your Year-End Close

This post is originally from The Protiviti ViewProtiviti, a subsidiary of Robert Half, is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit. The Protiviti View, the company’s blog, features commentary, insights and points of view on key challenges and risks facing companies today.

Financial reporting deadlines and regulatory compliance demands are challenging enough. No need to intensify them by postponing tasks best tackled now.

From new revenue recognition rules to the updated COSO Internal Control Framework, there are several issues that merit prompt attention. In a recent interview with Compliance Week, I was asked to come up with five things companies should be doing right now to prepare for the year-end close. Jim DeLoach asked me to share them here:

1. Revenue recognition

The new rules aren’t in play yet, but companies may want to begin considering how they will disclose their state of readiness and plans for adoption in 2017 (if the date isn’t extended). It is an important issue to address now because companies that intend to adopt the rules retrospectively will need to recast 2015 and 2016 revenue data. That means companies must be ready beginning in 2015 to conduct the necessary data gathering.

Another related topic that should be on the radar: The scrutiny of the application and auditing of current revenue recognition rules by the Public Company Accounting Oversight Board (PCAOB). The recent PCAOB Practice Alert, the subject of a recent Protiviti Flash Report (September 14, 2014), highlighted areas where companies may need to expand or reinforce their policies and practices.

2. Fair value

It is a good time to conduct tests and assessments for assets or investments. If the company is using third-party valuation firms, it is imperative to document and synthesize testing results now to ensure that valuations are properly supported – to the company’s and auditor’s satisfaction.

3. Purchase accounting wrap-ups

For companies that have recently executed a merger or acquisition, it may be necessary to conduct purchase accounting asset and liability allocations. Given recent upticks in M&A activity and the relatively low activity over the past few years, this may be a new activity for some. These allocations would need to be supported just as thoroughly as fair value calculations.

4. Accruals and charges

Companies planning to take large or unusual charges in the fourth quarter should be prepared to explain not only the magnitude of the charge, but also the timing of it – and defend why the charge wasn’t taken in an earlier period. Attention has intensified on when settlements, contingencies and large non-recurring items such as legal, environmental or remediation activities are addressed.

5. The COSO 2013 Internal Control – Integrated Framework

When the Committee of Sponsoring Organizations of the Treadway Commission (COSO) decided to update its 1992 guidelines, it sought to establish better guidance for a host of issues, including lack of transparency, ineffective board oversight and unbalanced compensation. By now, companies should be well along with their implementation and testing of the new framework, which was released in May 2013. Such preparation should include frequent and meaningful interaction with external auditors and other stakeholders. Though there is a clear preference for use of the new framework, the 1992 guidelines may still be used by a limited group of companies. When organizations report on their Form 10-K, they should be prepared to disclose which COSO framework (the 1992 or 2013 version) they’re employing and provide an explanation for their selection.

By taking early and proactive steps to address these key areas, organizations and their accounting and finance departments should be able to do the work necessary and, soon enough, enjoy the holiday season.