Annual Financial Statements Closing

By: Juan Bautista López
 

 

In many countries, the statutory deadlines for the annual accounting and tax closing coincide with the end of the calendar year, i.e., from January 1 to December 31. For such reason, as of such closing date, accountants prepare to issue the annual financial statements in accordance with the International Financial Reporting Standards (IFRS), as well as the calculation of Corporate Income Tax1 in accordance with applicable tax regulations.

This process starts in the final days of December and, in some cases, may extend through March of the following year. These months are critical for the accounting department, as shareholders expect to know the return on their invested capital, and the amount available for distribution as dividends. In addition, the tax authority expects to receive the annual income tax return.

Throughout their professional career, accountants develop a habit, which is to use all their intellectual efforts during the first months of the year to ensure an orderly and accurate annual closing process that involves the other areas of the company. Thus, reports are issued in a timely and reliable manner and are useful for senior management and shareholders. Subsequently, when the financial statements are examined by financial auditors or the annual income tax calculation is reviewed by the tax authority, there should be no significant findings or discrepancies.

However, why does the annual closing become a burdensome process for the accountants in some organizations? The answer is simple: If a company does not perform month-end closings to ensure the correct presentation of the financial statements, a substantial amount of analysis, updates, and corrections accumulates at year-end. A proper month-end closing process primarily includes:

  • Bank reconciliations.
  • Ageing analysis of accounts receivable and accounts payable.
  • Analysis of incomes and expenses.
  • Depreciation and amortization of fixed assets.
  • Recognition of inventory impairment and fixed asset obsolescence.
  • Provisions for impairment of financial assets, contingencies, and doubtful accounts, among others.
  • Calculation of current and deferred income taxes based on interim results.

If these tasks are performed on a monthly basis, there should be no significant workload preventing the closing of the annual financial statements in January of the following year. If, by the end of February, your company has not yet completed the closing of its annual financial statements as of December 31, 2025, it is advisable to review the accounting and financial processes together with financial management, as there may be inefficiencies or areas requiring improvement.

At BDO Outsourcing, we have the tools and a specialized team to ensure that your accounting closings are efficient, allowing us to become the financial ally that your company needs.

 
1 In Peru, the tax levied on corporate income is referred to as Income Tax. In other countries, it may be known as Corporation Tax or Profits Tax.

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