Take The Time To Reconcile Your Balance Sheet
As the year comes to a close, many are already preparing for their upcoming audit or review. From my experience, these processes tend to go smoothly if your balance sheet accounts are fully reconciled. This alone will take you 90% of the way. The remaining 10% can be trickier, often involving GAAP nuances and year-end adjustments that may require extra attention.
Below is a list of the more complex GAAP areas that typically arise at year-end, just in time for your audit or review. If you have not already discussed these with your CPA firm, now is the perfect time to reach out. Doing so will help you close your books accurately and avoid any delays in your engagement.
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- Business combinations (e.g., acquisitions) and the need for fair value accounting
- Lease accounting
- Impairment of fixed assets
- Impairment of right of use lease assets
- Impairment of goodwill and intangible assets
- Deferred compensation (e.g., profit interests, SARs, options)
- Gift card and loyalty program breakage accounting
- Gift card and loyalty program accounting
- Service fee recognition and presentation
- Complex equity transactions (e.g., preferred interests)
- Debt extinguishment through refinancing/restructuring
- Pass-through entity tax elections
- Compliance with debt covenants
- Related party transaction identification and disclosure
- Going concern issues
- Franchisor revenue recognition
- Accounting for involuntary conversions (e.g., fire, hurricanes)
- Accounting for termination costs
- Accounting for software costs
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If you anticipate being out of compliance with your debt covenants, it is essential to contact your banker early to discuss the waiver process. This will help avoid any delays in the issuance of your audited or reviewed financial statements.
Proper preparation is crucial for a smooth audit or review. With proper preparation and guidance, your team can minimize disruptions, allowing you to oversee the process with less stress. If you have any questions or need assistance with these complex GAAP issues, do not hesitate to contact your GBQ team.
By Dustin Minton
