The closing of the accounts involves many technical, regulatory, and organizational issues. The Audit Committee, under the control of the Board of Directors, is responsible for ensuring the smooth running of this process. Nowadays, the responsibility of the Audit Committee is no longer limited to certifying the true and fair view of the accounts. It also includes monitoring the preparation and production of the financial information.

The faithfulness and consistency of the accounts result, among other things, from the implementation of accounting principles, four of which are listed below:

  • Consistency: except in the case of an exceptional event, valuation methods may not be changed from one year to the next. Consistency reinforces the comparability of financial statements over time.
  • Conservatism: the financial statements are prepared on the basis of prudent assessments. This avoids the risk of transferring over subsequent years current uncertainties that could affect the company’s future assets and earnings.
  • Fair value: some balance sheet items are valued at the price that would be received for the sale of an asset or paid for the transfer of a liability in a normal transaction between market participants.
  • Going concern: the values retained are established with a view to the continuation of the company’s activities, and not its liquidation.

The closing of the accounts does not only consist in stopping the recording of transactions at the end of the year. It includes increases or decreases in value, accrual entries, analysis of probable risks and expenses, events revealed after the closing date, etc.

We know, moreover, that more than 60% of the balance sheet value is determined by reasonable estimates rather than by certain values.

To properly discharge its responsibilities, the Audit Committee, starting in December, should:

  • establish a list of areas that it considers to be of major importance and for which specific actions need to be planned by the CFO;
  • define milestones or alert thresholds relating to compliance with deadlines, detail the importance of certain adjustments, or even describe the discovery of major events such as fraud;
  • assess the extent of any discrepancies between the financial management and the statutory auditors, and resolve them to ensure the smooth continuation of their work; and
  • analyze key accounting assumptions and options relating to, for example, complex or exceptional transactions.

Understanding the standards, coordinating the works with the accounting professionals, resolving last-minute problems… the Audit Committee is inherently an active supervisor of the closing of the accounts.

How? What?

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