Closing the year is an integral part of every not-for-profit (NFP) organization’s accounting activities, and many organizations have a March 31 fiscal year-end. With the current global pandemic, it might be difficult for your team to focus on closing the year. However, it is imperative for your organization to have clear visibility into your financial health now more than ever.
The year-end accounting process is important for all organizations because:
- It is a GAAP requirement,
- It is required for tax filing purposes,
- It is often required by funders,
- It provides the board of directors and leadership team with useful information to plan for the upcoming year and evaluate last year’s performance. In today’s climate, this also means making informed decisions and creating a long-term continuity plan.
The year-end accounting process is typically conducted by the internal finance department, the treasurer or an outsourced bookkeeping firm, like Enkel. The organization’s board of directors is ultimately responsible for overseeing the year-end process and ensuring proper financial management.
Our year-end checklist is here to provide you with a detailed list of tasks to efficiently close the year.
Year-end Accounting Checklist for Not-for-profit Organizations
☐ Develop deadlines for closing the year
Before you kick start the year-end process, you will need to develop some deadlines with your finance department, leadership team and board.
Deadlines for internal tasks to be completed
- Recording accounts payable & accounts receivable
- Account reconciliations (bank and credit card statements)
- Adjusting journal entries (depreciation, vacation liabilities, etc.)
- Schedule updates (deferred revenue)
Deadlines set by external parties
- Deadline for tax returns
- Deadlines imposed by funders
Ensure your books are up to date
Many NFP organizations in Canada with restricted contributions tend to use fund accounting to track and report on their finances. Fund accounting is a great way for organizations to stay accountable to donors and increase transparency. Therefore, it is vital for organizations to have a robust bookkeeping process for tracking transactions.
☐ Compile all documents – either digitally or hard copy
Over the year, your organization will likely collect a variety of transaction documents to manage, like receipts and invoices. Physical filing storage systems tend to result in missing documents, poor organization of bookkeeping records, and lots of time spent filing.
An easy way for you to keep track of all your accounting records is by storing them digitally. In the event of a Canadian Revenue Agency (CRA) tax audit, digital copies of your source documents will be accepted.
Our favourite apps are Receipt Bank and Hubdoc, but there are many other great apps in the market with similar functionalities.
Receipt Bank is a receipt management app that helps users to upload and store receipts and invoices on the go. Your employees can easily take a photo of their receipts and upload it to the Receipt Bank mobile app. The app will then extract information from the transaction document and store the photo in your account as a source document.
Hubdoc is a document collection and management tool with similar functions to Receipt Bank. One of Hubdoc’s key features is the bank statement download. Once you add your online banking account to Hubdoc, the app will automatically retrieve your bank statements.
☐ Keep your transactions up to date in your accounting software
Next up, you will need to ensure your transactions through the year are updated in your accounting software, with the supporting source documents attached.
If you are currently using a desktop accounting software, this is a great time to think about transitioning to cloud-based accounting software.
With the social distancing measures in place, many organizations will have to turn to a remote working model. Cloud accounting software facilitates collaboration for remote-based teams, allowing your authorized team members to access your accounting software from their remote locations.
Moreover, you can easily automate your workflow between your document management app and your accounting software.
For example, Receipt Bank uses its Optical Character Recognition technology to extract the key information from your transaction documents. You can then verify the accuracy of the information, and proceed to export the information to your accounting software with a digital copy of the supporting document attached. This creates a clear audit trail while reducing the need for manual data entry.
You can also connect your bank feeds directly to your accounting software and get real-time updates on your organization's finances. Once your transactions are up to date in your system, you should be able to easily reconcile your accounts.
☐ Track all tax receipts
This is only applicable to organizations that are authorized to issue tax receipts. If your fiscal year-end aligns with the calendar year-end, make sure that you’re on track to issue all tax receipts to your donors.
Be Audit Ready
☐ Know if your organization is getting an audit, review engagement, or notice to reader
Your organization’s level of engagement will vary depending on your provincial legislation. If your organization is subjected to an audit, your auditors might want to make some adjustments to your financial statements before finalizing them.
☐ Coordinate with your auditor to confirm the audit plan and timeline
If your organization is subject to an audit, you will need to meet with your auditor to confirm the audit plan. The plan should outline each step of the audit process and establish the roles, responsibilities and deadlines required for the audit to be completed on time.
The plan should also list all the necessary documentation that your organization will have to provide the auditor during the audit.
☐ Make sure your team is briefed about the audit and clear about their responsibilities
After you’ve created a plan with your auditor, you should brief your team on the audit and their respective responsibilities during the audit.
Some of the responsibilities include:
- Being in charge of responding to the auditor’s queries,
- Completing the schedules of information requested by the auditors,
- Explaining the operational processes to the auditors.
Finalizing your financial statements
☐ Share the draft audited financials with your organization’s leadership team and board
Once your audit is complete and all adjustments have been made, you will have a set of draft audited financial statements (i.e. Balance sheet and income statement) to share with your board.
Typically, the finance committee of the board will review the draft audited statements in depth and recommend them for approval by the board. Do note that due to COVID-19, the board meeting deadlines for some types of organizations have been extended.
However, once the board approves them, the draft audited financial statements will be considered finalized.
☐ Use the finalized financial statements to prepare any required filings
Even though charities and non-profit organizations are both exempted from paying income tax, they still fall under Canada's federal Income Tax Act. Both types of organizations will have to file a tax return within 6 months of their fiscal year-end. However, NPOs and charities will have different tax forms to file at year-end.
- Registered charities will need to file the Form T3010 – Registered Charity Information Return and Form TF725 – Registered Charity Basic Information Sheet.
- Non-profit organizations will need to file the Form T1044 – NPO Information Return. NPOs that are incorporated will also be required to file a T2 Corporate Income tax Return or a T2 Short form.
In light of COVID-19, registered charities with filing deadlines due from March 18 to December 31, 2020, will have until December 31, 2020 to file their tax returns. Other types of NFPs may have different deadlines depending on the filing requirements.
You can learn more about the different tax requirements that Canadian not-for-profit organizations are subjected to here.
☐ Prepare financial summaries to be included in the annual report
If your organization prepares an annual report for your stakeholders, you can use the information from your financial statements to prepare any financial summaries. You can also use your financial statements to prepare meaningful reports for your board of directors and management team.
Some common types of financial reports include:
- Budget vs. actual reports
- Cash flow forecast
And that concludes our year-end accounting checklist.