COVID-19 Has Closed Stores But Not Your Books
One of the challenges facing organizations during this pandemic is the completion of standard close procedures and audit preparation with a fragmented team. In general, it is not uncommon for teams to experience an increase in the amount of time and effort needed to close the books (especially if the work must be completed in a remote environment), while also maintaining standards for period close, as well as staying on schedule.
Here are some of the areas management should focus on to ensure a smooth close process while experiencing disruptions (including working remotely) to operational accounting:
Identify Key Personnel, Processes, and Controls
To mitigate the impacts, executives should consider the following:
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- Identify key close activities typically carried out by missing team members and determine the appropriate member to reassign. Give consideration to each person’s level of experience, knowledge, and capacity. Determine if close calendar deadlines need to be adjusted.
- Start planning for contingencies. Identify tasks that are reliant on one key staff member and use this close period to diversify the knowledge base of the finance team in case future absences arise. As time allows, take the opportunity to include additional team members in final review meetings and encourage team members to cross-train each other on their processes. Gather any vital process documentation, job aids, and training documents in one location that are easily accessible by all team members.
- Identify any new risk areas resulting from the current situation (e.g. impacts to cash flow or changes to inventory levels). Determine if existing controls are sufficient to address any new risks or if additional control procedures need to be put in place.
- Identify resources for ad-hoc requirements such as potential additional SEC reporting requirements or a refresh of estimates, accruals, and forecasts. These resources may also be responsible for monitoring any ongoing developments from the regulators and standard setters related to COVID-19.
- Test system access for all team members and confirm if offshore locations are still functioning effectively.
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Establish a Standard Process to Finalize Close Activities
The challenge of closing books remotely is a hurdle to overcome for many organizations. Ensuring teams stay aligned on priorities and deadlines will be key to success during the pandemic. The best way to achieve this is to ensure that all team members are consistent in their work output.
To mitigate the impacts, executives should consider the following:
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- If not already in place, establish daily team status meetings to ensure close activities are on track. This will allow management to get an overall status of tasks and re-prioritize as needed.
- Identify and address any potential roadblocks at the earliest stage and encourage team members to escalate any issues as soon as they arise.
- Develop standardized templates for common tasks to be used by all team members, (e.g. accruals, journal entries, account reconciliations).
- Set out clear instructions on preferred methods of communications and when to use each (e.g. instant message, email, phone, video meeting).
- Because physical sign-off will no longer be available, establish a review process. Digital signatures or email approvals should be used as a proxy.
- Due to remote working, the completion of review procedures may be more fragmented. Rather than emailing questions and responses, consider maintaining a centralized file where all questions and responses are entered. This file can then be shared with the auditors as evidence of management review of close procedures.
- During virtual meetings, ensure all participants are in agreement on what action items need to be addressed and any key decisions/ conclusions that were made during the call. One team member should send a follow up email to participants and key stakeholders that outlines action items and key decisions to ensure accountability.
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Ensure Audit Documentation is Top of Mind
Auditors will view this period of economic uncertainty as a time of increased risk and uncertainty for organizations. As teams change and roles are reassigned, auditors will examine whether any changes to standard close procedures are reasonable and risks are appropriately addressed.
To mitigate the impacts, executives should consider the following:
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- Meet (virtually if necessary) with the auditors to ensure both parties are clear on their understanding of materiality, key risk areas, and the key controls in place to mitigate such risks. Discuss any new risk areas and proposed control design with the auditors.
- Ensure the team maintains appropriate segregation of duties in any task reassignments.
- Consider whether tasks have been appropriately reassigned. Ensure team members taking on any new/ additional close responsibilities have the necessary level of experience/ knowledge to be able to perform the tasks appropriately.
- Ensure all key decisions and judgements are fully documented. Any deviations from the historic approach should also be documented with appropriate levels of review and approval from within the organization. Remember, evidence of review is not a signature or sign-off.
- Consider how the finance team will provide information to the auditors. Many of the larger accounting firms will have their own internal document storage site to upload files. Remind team members to password protect any attachments sent outside of the firm.
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