cpd types

Why do you do a Month-End Close? It's an interesting question and one which many organisations have not yet seriously considered.

What is the purpose of month-end close? Who are the stakeholders for it, and why do they require it?

I think this is a question you should spend some timing thinking about. Discuss it with your colleagues too. Often the responses can be interesting "we have always done one"; "management require it"; "we need to do a close to prepare management reports".

Really? Modern accounting systems allow you to extract reports with up-to-date data at any time. Old finance systems required a close in order to save down data and populate reports because active storage was expensive, and they lacked processing power. Nearly 40 years ago I worked with a system that required a nightly close because it didn't have enough active memory to store more detailed transactions. But modern systems are vastly different.

I often think that the month-end close is a relic of accounting tradition handed down from generation to generation of accountants; like received wisdom: ye olde accounting lore!. I am unconvinced that organisations with modern accounting systems need to do a full close every single month. Surely Financial Reporting Standards only require an annual statement? Listed companies may need to report to investors more frequently but even they don't need a monthly close.

Of course, we do need monthly debtor and creditor reviews, and stock checks for higher value items, but those things don't need a full close. And management accounts and performance management reports should be produced more frequently than monthly anyway (and don't need a formal close).

It might be that one easy improvement would be to move to a bi-monthly or quarterly close and see how it goes. What other processes would be affected by that change?

What do you think?

Stay up to date with the latest changes in finance and accounting with the AAT Accelerated Pathway: Technical Update 2020-21, developed in commercial partnership with AAT.

Ross Maynard is an author for accountingcpd. To see his courses, click here.

  1. Gillian T
    Posted 10-Jan-2021 at
    I agree that month end closes are not always necessary but are now almost an old tradition that companies fear breaking from .
  2. Alan M
    Posted 20-Oct-2020 at
    Brilliant. Couldn't agree more.
  3. Innocent M
    Posted 11-Aug-2020 at
    Thanks for the bite
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