Financial Consolidation and Close

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The financial consolidation and close processes involve assembling all business data from various operating activities, departments, business investments, and more. The goal is to prepare a quality financial statement package that accurately reports your financial position.

This consolidation process happens at the end of an accounting period, such as the end of the month, quarter, or year (fiscal or calendar.) During this process, all financial data within the company is combined. For example, all subsidiaries, departments, locations, and even currencies are consolidated into a single reporting level that can be shared with management and external stakeholders.

In other words, the period has ended, and all transactions and relevant data must be reviewed. The accounting and finance teams will generally prepare this information according to specific standards, such as GAAP, IFRS, or other private reporting requirements.

The key financial statements involved in this process are the income statement - or profit and loss statement - the balance sheet, and the statement of cash flows. Once you create these reports and make the necessary adjustments, there will be no more activity in that month, quarter, or year. This means that the financial consolidation is complete, and the period is closed.

Most businesses perform the financial consolidation and close process monthly - with more detailed reporting and analysis done on a quarterly and annual basis. As a result, closing the books will take more time during the quarterly and annual periods.

Likewise, many companies begin the financial consolidation and close process after the calendar month has ended. If a company is looking to close the books for January, they would not start the process until February 1 or later. The time required to prepare the financial statements depends on the company, but typically the close process can be anywhere from a few days to a week or two.

Sometimes companies will start closing the books a few days before the actual end of the calendar period to speed up this process. They may start by finalizing departments like accounts payable and fixed assets first. If that is the case, any transactions posted after the fact get pushed to the next reporting period.

Another option is to start closing early and prepare estimates for the days remaining in the month. Of course, this will require a reconciliation between estimates and actuals once the period is closed.

What Data Is Needed for Financial Consolidation and Close?

To accurately build financial statements and complete the close process, your team must access information and data across your organization.

For instance, your company must analyze all revenue received from sales, related expenses incurred, and other financial details. Your system must review all transactions posted in the period, so your team can determine if any adjustments are needed.

It is common for adjustments to occur in areas like accrued expenses. The company may have incurred the expense, but the invoice was not received or paid yet. The transaction must still be accounted for, though! It is essential to capture the revenue and expense in the appropriate period as required by financial reporting guidelines.

As businesses grow, they may develop or even acquire new subsidiaries. Some subsidiaries may be in different countries and have multiple currencies or varying reporting requirements. The financial consolidation and close processes involve combining all these levels within the organization into a single parent company, so management and shareholders can easily see the big picture!

However, each subsidiary will still need to track its own set of assets, liabilities, equity, income, and expenses for every reporting period.

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