As the year draws to a close, Web3 finance managers need to prepare for an intricate set of year-end tasks that balance traditional finance requirements with the unique aspects of decentralized finance. From managing crypto holdings and intercompany balances to ensuring compliance, Web3 finance teams face an array of challenges. Here’s a checklist of essential tasks for a smooth and accurate year-end close:
- Accrue Bonuses and Other Year-End Provisions
One of the first tasks at year-end is to recognize and accrue provisions that impact the annual financial statements. Key provisions include:
- Bonuses: Accrue for employee bonuses earned during the year but not yet paid. This ensures the balance sheet accurately reflects these obligations.
- Unutilized Leave: Employees’ unutilized leave often carries forward to the next year or may need to be paid out. Providing for unutilized leave is crucial to reflect the company’s liability accurately. Calculate the value based on unused leave days and include it in the provisions to account for future payouts.
- Restoration and Other Provisions: For leased properties, remember to accrue for restoration costs if your lease terms require it. Although this may be common across sectors, restoration costs can be substantial and must be accounted for in advance.
Accruing these provisions at year-end helps ensure that financial statements accurately represent the company’s liabilities, giving stakeholders a clearer view of the organization’s financial position.
- Remind Employees to Submit All Claims and Expenses
Year-end is the final chance to capture all employee expenses and reimbursement claims for the fiscal year. Send reminders to employees to submit outstanding expense claims or reimbursement requests before the closing date. This step ensures that all costs are accurately recorded, avoiding understatements that could skew financial reporting.
Using automated reminders or expense-tracking software can streamline this process and improve timely submissions.
- Confirm Completion of Services for Revenue Recognition
Revenue recognition is critical at year-end to ensure that all booked revenue aligns with actual services delivered. Specifically:
- Confirm that services for which payment was received during the year have been completed, or that all performance obligations under contracts have been met.
- Review ongoing contracts to ensure that revenue is recognized only when performance obligations for the year have been satisfied, particularly for items like deferred revenue.
In the Web3 space, where services may include software licensing, staking services, or other digital assets, following precise revenue recognition guidelines ensures compliance with accounting standards like IFRS or GAAP.
- Reconcile Intercompany Balances, Including Crypto Quantities and Exchange Rates
For Web3 companies with multiple entities and intercompany transactions involving crypto, year-end reconciliation is critical. Focus on:
- Crypto Holdings: Reconcile the quantity and value of crypto holdings across entities. Agree on market rates used to value these assets, as fluctuating crypto prices can lead to discrepancies in intercompany balances.
- Exchange Rates: Confirm that exchange rates for crypto or fiat currency transactions align across entities. With crypto’s rapid rate fluctuations, consistent rates across entities improve consolidated reporting accuracy.
Accurate intercompany reconciliation supports consolidated financial reporting, minimizes discrepancies, and helps address potential audit issues.
Additional Tips for a Smooth Web3 Year-End Close
- Stay Informed on Regulatory Changes: Web3 regulations continue to evolve, and year-end is an ideal time to review compliance. Ensure that all necessary disclosures and reporting requirements are met to avoid surprises.
- Automate Processes: Look for opportunities to automate repetitive tasks, such as expense submission and intercompany reconciliations. Leveraging software solutions that integrate traditional and crypto finance processes can save time and improve accuracy.
- Foster Cross-Department Collaboration: A smooth year-end close requires input from various departments. Ensure that teams in revenue, HR, and operations understand their roles and deadlines for closing.
In conclusion, the Web3 year-end close process demands attention to both traditional finance requirements and the unique complexities of crypto and decentralized finance. By following this checklist, Web3 finance managers can manage these complexities effectively, ensuring a transparent and accurate close for the fiscal year.