“Locking the books” is a term that’s used to describe one of the most critical controls that’s put in place when using online accounting services. A high end, comprehensive service will typically offer features that go far beyond simple daily accounting and can include the additional benefits afforded by dedicated controller services.
When generating financial reports for a specific period, it’s the controller’s responsibility to “lock the books” so that no one can change the financial records once the reporting period has ended. This helps maintain the integrity of the company’s financial records and eliminates the possibility of costly errors. Here’s how “locking the books” works.
3 Simple Steps to Locking Your Books
- The controller receives the client company’s financial records from the bookkeeper and reviews them for accuracy.
- At this point, the controller posts a closing date and “locks the books,” which prevents any additional changes from being made without his or her knowledge, as well as without the express consent of the client company. For added security, the financial files are protected by a password only the controller knows.
- A report is then generated by the accounting service and sent back electronically to the company whose financial report has just been prepared.
From time to time, it may be necessary to make changes to the records if information is received late or if inaccurate financial data was provided to the accounting service. When this happens, the controller accesses the locked records and makes the requested changes. Once this is complete, in order to ensure that everyone is on the same page, the controller generates an updated report that supersedes the original and delivers it electronically to the client company.
Of course, the simplicity of this process rests on timely financial reporting, accurate data and established processes and procedures. Without proper data and record keeping, locking your books won't be particularly effective at ensuring the integrity of your financial data. Make sure to create and adhere to strict financial record keeping policies to get the most out of "locking the books".