Download pdf - Month End Closing Procedures 5245

GOVERNMENT OF RAS AL KHAIMAH

2013

Finance Team

Month End Closing Policies and Procedures

Government of Ras Al Khaimah

Month End Closing Policies and Procedures Page 2

TABLE OF CONTENTS

1. INTRODUCTION ..............................................................................................................................................3

2. PURPOSE ......................................................................................................................................................3

3. SCOPE ............................................................................................................................................................3

4. DEFINITIONS ...............................................................................................................................................3

5. POLICIES.......................................................................................................................................................3

5.1. Month-End Pre-closing steps .....................................................................................................................3

5.2. Month-End Closing steps. ..........................................................................................................................4

5.3. Month-End Post-closing steps. ...................................................................................................................4

6. PROCESSES ..................................................................................................................................................5

6.1. Month-end Pre-closing processes ...............................................................................................................5

6.2. Month-end closing processes......................................................................................................................5

6.3. Month-end Post-closing processes .............................................................................................................5

7. PROCEDURES ..............................................................................................................................................6

8. PRE-CLOSING RESPONSIBILITIES. .........................................................................................................6

9. CLOSING CHECKLIST ................................................................................................................................7

10. PROCESS MAP .........................................................................................................................................8



1. INTRODUCTION Month-end closing processes using the enterprise-wide, Systems Application Products (SAP) software

include the closing of posting periods in the FICO module, the Materials Management module (MM),

and the FM module. This directive outlines the finance and finance-related roles and responsibilities,

along with the policies necessary to employ and consistently apply best business practices when

preparing to close, closing, and reconciling financial accounts each month.

2. PURPOSE To establish roles, responsibilities, and policies for monthly, pre-closing, closing, and post-closing

reconciliation processes.

3. SCOPE Applies to all government departments, hereinafter referred to as departments, under the Governments jurisdiction that use SAP.

4. DEFINITIONS Month-end closing, The work that is performed at the end of a posting period.

Year-end closing, An annual balance sheet and profit and loss statement, both of which must be created

in accordance with the legal requirements of the country in question.

Clearing, A procedure by which the open items belonging to one or more accounts are indicated as

cleared (paid).

Open item management, A stipulation that the items in an account must be used to clear other line

items in the same account. Items must balance out to zero before they can be cleared. The account

balance is therefore always equal to the sum of the open items.

Fiscal Year, A period of usually 12 months, for which the entity produces financial statements and takes

inventory.

Open period, An open period in SAP is a period that is open for posting.

Closed period, An closed period in SAP is a period that is closed for posting.

5. POLICIES

5.1. Month-End Pre-closing steps 1. Parked and Saved as Complete FI documents shall be posted or deleted no later than the last

business day of the month. Parked and Saved as Complete documents include all invoices,

revenue documents, and journal entries. Note: Parked only FI documents can remain in parked

status at the end of the reporting period.

2. All Goods Receipt/Invoice Receipt (GR/IR) account balances shall be reviewed and account maintenance steps performed at least weekly. Goods receipts and invoice receipts shall be

entered into SAP upon receipt.



3. Assets & liabilities section personnel responsible for fixed assets acquired through capital projects shall enter all fixed asset settlement rules into the SAP system by the last day of the

month. All settlement rules shall be maintained on a monthly basis to ensure proper settlement of

AUC assets to final, fixed asset general ledger accounts.

4. Department fixed asset additions, deletions, transfers, retirements and expenditure reclassification entries shall be posted monthly by the last business day of the month. Monthly

confirmations shall also be performed and submitted to the concerned departments to ensure an

accurate fixed asset balance.

5. Balance sheet reconciliation must be performed to ensure completeness and accuracy of the monthly management reports (MIS).

5.2. Month-End Closing steps.

1. The month-end closing steps shall be executed and completed on or before the 3rd

business day of the following month.

2. Accounting system users shall be notified that the posting period is closed and reports are

available for the month by the 5th business day of each month.

3. All posting periods shall remain closed after the monthly closing process is complete and the period is closed. Accounting adjustments required after the period is closed shall be made in the

open, current period. Closed periods shall be re-opened only upon written request to and

approval by Finance Department.

4. Posting periods 13 through 16 will be open only for authorized accounting system user IDs. Finance Department shall review and approve all SAP posting period authorizations for this

purpose before the basis team may grant authorization.

5.3. Month-End Post-closing steps. 1. The GR/IR account shall be reviewed for open items on purchase orders on at least a weekly

basis and by the last day of the month. Open items that are more than 30 days old shall be

resolved in the system by the last day of the following month.

2. Month-end closing transactions shall be validated by Finance Department by the 3rd business day of the month.

3. Customer receivable account balances shall be aged and evaluated within government guidelines to determine collectability and need for dunning letters to properly manage the accounts.

4. Cash clearing accounts shall be cleared and reconciled on a monthly basis. Line items more than 30 days old should be reviewed and steps taken to resolve.

5. Reconciling adjustments shall be posted in the current, open period. Posting periods shall not be reopened for this purpose unless approved in advance and in writing by Finance Department.



6. PROCESSES

6.1. Month-end Pre-closing processes Activities that must be done before the posting period can be closed for the month.

1. Posting or clearing parked documents. 2. Posting all cost allocations for the posting period. 3. Posting all accrual and deferral accounting entries. 4. Creating settlement rules and final fixed asset settlement rules.

6.2. Month-end closing processes Month end closing processes include activities necessary to complete monthly accounting entries to

fairly present the Governments financial position and results of operations for the period. 1. Closing the posting period for the previous month in FI and CO modules. 2. Manual and automatic clearing of select, general ledger account line items. 3. Posting and reversing accrual accounting entries. 4. Posting reclassification and elimination entries to properly report internal activities and balance

sheet accounts.

5. Posting depreciation expenses. 6. Settling completed, capital projects in the AUC accounts to fixed assets. 7. Clearing cash balancing GL accounts upon receipt of the bank deposit slips. 8. Reclassifying the GR/IR account and posting accrued expenses for all non-valuated purchase

order line items.

6.3. Month-end Post-closing processes 1. Include activities necessary to validate the month-end closing steps, verify that all documents

posted appropriately, and reconcile FI account balances. Various reconciliations must be

performed monthly to ensure the validity of general ledger (GL) account balances in FI. (b)

Reconciling the asset sub-module account balances to the respective fixed asset GL account balances.

Reconciling the Accounts Payable (AP) and Accounts Receivable (AR) subsidiary ledgers to the respective GL account balances.

Reconciling the SAP bank account balances with the actual bank balances (Bank Statements) as at the end of the month.

2. Financial Accounting Records (FI Module) The financial accounting records measure revenues, expenses, the associated payables/liabilities, and receivables/assets on an accrual basis

of accounting. That is, expenditures/expenses are recognized when they are incurred and

revenues are recognized when earned or susceptible to accrual. Accounting transactions are

posted by general ledger account and fund, and one or more of the following cost objects: cost

center & internal order.

3. Parked and Saved as Complete FI documents Invoices, revenue documents, and journal entries that have been Parked and Saved as Complete but not posted in FI. These FI documents are posted in FM as Value Type 60 documents and they consume budget even though the document

is not yet posted in FI or reflected in the GL account balance. Parked FI documents (not Parked

and Saved as Complete documents) do not post in FM; and therefore, do not consume budget.



4. Posting periods Twelve monthly posting periods exist in the Material Management (MM) module (Procurement and Inventory), each period coinciding with a month of the Governments fiscal year. That is, posting period 1 is January 1-31 and period 12 is December 1-31. Only the

current posting period is open for this group of activities.

There are 16 posting periods in the FI, CO, and FM modules. The first 12 posting periods

represent the month of the governments fiscal year, as defined herein for the MM module. Periods 13 through 16 are special accounting periods used only by the Finance Department to

close the accounting records at the end of the fiscal year. Period 13 is used to post reconciling

adjustments before closing the fiscal year and carrying account balances forward. Period 14 is

used to adjust only the financial accounting records to post accruals, deferrals, eliminations, and

reclassifications, not posted on a monthly basis, to reflect Governments financial position and results of operations according to the International Public Sector Accounting Standards. Period

15 & 16 are used to post accounting adjustments resulting from the Governments Comprehensive Annual Financial Report (CAFR) audit.

7. PROCEDURES 1. Ensure that financial statements produced on a timely and accurate basis, within 5 working days

of the end of the reporting month.

2. Establish a checklist of month-end tasks that are performed by various departments and monitored by the Finance Department (SAP Month-End Closing Checklist).

3. Finance Department is responsible for managing the month-end closing process.

8. PRE-CLOSING RESPONSIBILITIES. The Finance Department is responsible for the following:

1. Maintain the opening and closing of all posting periods in the SAP system.

2. Notify departments and accounting users of the expected month-end closing date.

3. Develop and distribute month-end closing instructions.



9. CLOSING CHECKLIST

Step Description Deadline Responsibility

1 Open next month's posting period Day 1 Finance Manager

2 Last day to post Cash Receipts and Cash Clearing entries Day 1 AR Accountant

3 Post final A/P invoices Day 1 AP Accountant

4 Record Payroll entries Day 1 Payroll Accountant

5 Record the Monthly amortisation of prepaid expenses Day 1 GL Accountant

6 Record recurring entries (Interest, Private Allowances, Private Pension, Etc) Day 1 Treasury Accountant

6 Settlement of AUC assets to main assets Day 1 Asset Accountant

7 Post parked documents that belong to the reporting month (GL, AP, AR,AA) Day 2 Accounting Manager

8 Execute recurring entries Day 2 Finance Manager

9 Post Accruals (Expenses, Assets & Liabilities, other than payroll accruals) Day 2 Accounting Manager

10 Post other adjusting entries Day 2 Accounting Manager

11 Run Monthly depreciation Day 2 Head of Assets & Liabilities

12 Revaluation of foreign currency open items Day 2 Finance Manager

13 Load last electronic bank statement (EBS) of reporting month Day 2 Head of Treasury

14 Complete bank reconciliation Day 2 Head of Treasury

15 Maintain GR/IR clearing account Day 2 Accounting Manager

16 Balance sheet reconciliation Day 3 Accounting Manager & Finance Manager

17 Close the period. Day 3 Finance Manager

18 Inform all End-Users that reporting month is closed for FI postings Day 3 Accounting Manager

19 Reverse accruals in the new reporting period Day 3 Accounting Manager & Finance Manager

20 Inform Reporting & Budgeting Department to start preparing monthly management reports Day 3 Head of Accounting & Finance

Check box

to indicate

completion



10. PROCESS MAP

Period End processes in SAP

To-Be Processes

Mon

th E

nd

Process Start

Stock Reconcil iationPhysical Inventory in

SAPVerify the

excess/shortage in SAPPost stock difference in

SAP

Depreciation Posting

The process has to be triggered manually.

depreciation calculation

and posting will be automated

Refer to asset

accounting

process

Recurring Entry Execution

This entry will be done in th way of recurring

entry

Execute recuring entry on the basis of

settlement period

Accrual posting and reversal

Enter Accruals Reverse Accruals

Bank Reconciliation

Refer to the bank

reconciliation

process

ProvisionEnter provisions for loss,

stock damages, etc..Review and post

provisions

Payroll posting

Record the payrollentries using the

account AAM

Review and post payroll entries

Foreign currency revaluation

Open items per vendor and customer will be

revaluated

Review and post unrealized gain/loss

GR/IR reclassification

Clearing of GR/IR account per completed

PO

End

Open/Close FI-MM period

Open/close period

1. INTRODUCTION2. PURPOSE3. SCOPE4. DEFINITIONS5. POLICIES5.1. Month-End Pre-closing steps5.2. Month-End Closing steps.5.3. Month-End Post-closing steps.6. PROCESSES6.1. Month-end Pre-closing processes6.2. Month-end closing processes6.3. Month-end Post-closing processes7. PROCEDURES8. PRE-CLOSING RESPONSIBILITIES.9. CLOSING CHECKLIST10. PROCESS MAP