Closing Book

When an accounting or reporting team "closes the books" they generate an archive of material that supports the financial statement which is generated at the end of a month, or end of a quarter, or end of a fiscal year.  This is sometimes referred to as a "closing book" or "closing binder".

When I began as an auditor for Price Waterhouse back in 1982, computers existed but no one really used them in the accounting process quite yet.  The "closing book" for the clients we audited at that time was usually a drawer in a file cabinet or desk that had a bunch of file folders in them.  Each file folder was for a specific type of supporting item like the trial balance printout from the accounting system, the bank reconciliation(s), trade accounts receivables trial balance, physical inventories that were taken, statements received from the bank that told you how much was still do on a loan, and so forth.

Eventually, the closing book was created mainly in Excel or some other electronic spreadsheet.  A reporting team usually had a number of electronic spreadsheets, different people on the team maintained specific spreadsheets.  By putting all the spreadsheets together, you get (a) all the supporting material for a financial statement and (b) the actual final financial statement.

Fun fact; the consultancy Gartner estimates that the average Fortune 1000 company used 800 electronic spreadsheets to prepare its financial statements for regulator reporting. (see here for reference to this and other fun facts)

And so basically, a "closing book" or "closing binder" is the documentation supporting the numbers, the policies, the quantitative and qualitative disclosures within a financial statement.  Sometimes that financial statement was subjected to an independent third-party audit, and much of the stuff provided to the auditor came from or were copies of stuff in the closing book or closing binder.

The closing book or closing binder is official documentation; an authoritative record.  It is evidence. If adjustments where made to the printouts from the accounting system, those adjustments were documentation that backed up the changes. the closing book/closing binder included things like: (not all will be applicable to every financial report)

  • the final financial statement
  • incremental drafts of financial statements
  • trial balances (pre-close and post-close)
  • adjusting, reversing, closing journal entries and their supporting documentation
  • reconciliations and tie-outs
  • GAAP conversions, if multi-GAAP
  • currency conversions, if multi-currency
  • consolidation of any subsidiaries and intercompany eliminations
  • checklists
  • memos and other documentation that explained judgements, estimates, unusual transactions, materiality issues, etc.
  • management and other signoffs
  • other routine and nonroutine tasks

Effectively, the closing book/closing binder includes the complete archive of documentation that one could use to understand the generation of the financial statement or even reconstruct that financial statement from details months or maybe even years later if need be.  If someone were to ask, "Why did we book that $2,400,000 adjustment to inventory?", the answer would be in the closing book/closing binder.

The closing book/closing binder proves that everything "ticks and ties", "cross casts and foots", company closing procedures where adhered to, and is the authoritative record which supports a published financial statement.

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