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CFO’s Q4 Checklist: 6 Things To Clean Up

(This story originally appeared on CFO magazine’s website.)
By Eric Segal

For a CFO, the fourth quarter brings a lot of stress not normally felt throughout the year.

First, there’s the budget for next year, and then, the year-end close, and completing any tax driven transactions.

But there’s one item, which is often given short shrift, that a chief financial officer should view as an opportunity.

Year-end cleanup is the time for redemption. It’s a time to resolve open accounting issues and prepare of the annual external audit. It’s a time to get ahead of year end.

Staying a few moves ahead of next year is imperative in a difficult economic climate with continuing staffing challenges and supply chain disruptions.

Here is a Q4 checklist CFOs can use to improve financial performance and business performance:

1. Treat Them Like Business Partners. Many CFOs want to spend less time talking with auditors. But Q4 is the best time. Share notes of what is on each other’s list for the upcoming audit and ask them about new accounting pronouncements. You should also proactively call your banking partners and update them on year-end matters and projections for the new year. Include your lawyers in the mix as well to discuss any disclosure questions or regulatory hot buttons. Thinking about your service providers as partners will put you on a better path beyond 2022.

2. Carefully Review Key G/L Accounts. Through the course of a year, a lack of precision can creep into the routine processes. For example, you’re trying to get out the Q3 reporting to make the deadlines. To make it happen, you find a place to account for an immaterial unreconciled item and the reporting gets done. No problems, right? There might be if you can’t reconcile in Q4 because you forgot about the “temporary” entry from Q3. Although your intention was to adjust the entry immediately, other priorities could have come into play. Q4 is a good time to clean up the immaterial things that may have accumulated throughout the year.

3. Communicate Early and Often. As the economic uncertainty continues, are layoffs on the horizon at your company? Nationwide, outplacement firm Challenger, Gray & Christmas reports the number of layoffs has increased 68% in September, when compared to the same period in 2021. If your company will follow suit, you must develop a process with senior management in general and Human Resources specifically so you can determine when, under GAAP, to book the appropriate severance reserves.

4. Conduct Impairment Testing. Q4 is generally the right time to assess the value of your assets, both long term and short term, such as account receivables and goodwill. Neglecting this annual review could complicate the year-end process. Follow GAAP impairment testing rules and review the expected benefit and/or fair value of the assets compared to current book value. If an asset is impaired, take the appropriate write down.

5. Analyze Significant Accruals. Perhaps you have a large accrual for legal fees and the project isn’t wrapping up by the end of the year. What must you do to carry it over? Is it possible you should reverse it? Review estimates and accruals on your balance sheet; make sure they are supported. Have conversations with your largest service providers so you can account for the expenses properly. Find out today which legal actions are probable and estimable, so you are not chasing a law firm on New Year’s Eve.

6. Take Control of Controls. For publicly traded companies, the Sarbanes-Oxley Act (SOX) has added responsibilities to corporate executives and their boards. Start with Section 404, which centers on an “adequate” internal control structure. Have your internal controls over financial reporting been tested? Are they effective? The goal is to discover and remediate any deficiencies in advance of the audit.

The year-end process can be a stressful time for CFOs. I know firsthand. Don’t allow Q4 to manage you. From a financial operations perspective, take charge with a checklist that will create opportunities in the new year.

(Eric Segal, who is a partner at CFO Consulting Partners, leads the firm’s Financial Institutions and Insurance practice.)