Smart 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). The use of 800 electronic spreadsheets is particularly problematic when you know that a 2024 multi‑university study found that 94% of spreadsheets used in business decision‑making contain errors, many of them critical. This is only one of many, many studies that point out spreadsheet error pervasiveness in operational environments.

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. A closing book has a lot of moving parts.  Signoffs are necessary in many cases.  Internal reviews are performed.  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.


Could there be a better approach to creating and maintaining a closing book? Think a "smart closing book".  Yes, I think there might be; check out Understanding Global Open Industry Standards Based Model-driven Semantic-oriented Artificial Intelligence Powered Accounting and Audit Working Papers. In that paper I explain the characteristics of modern accounting and audit working papers.

Ideas that once seemed futuristic are becoming commonplace. Accounting information wants to be connected. We need something more durable and scalable than only electronic spreadsheets. We want information to be interconnected. We need to think outside the box, outside the electronic spreadsheet. We need a new tool, a more modern spreadsheet.

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