The month-end close presents many challenges for accountants, who often spend days on reconciliations to ensure accurate financials. So, it can be frustrating when you think you’re done and suddenly someone makes changes after the close and creates discrepancies.
Luckily, accounting teams have tools at their disposal to prevent this, like general ledger (GL) locking in your accounting system.
In this post, we’ll go over the key benefits and best practices for GL locking.
What is GL locking?
GL locking is a control mechanism used in accounting systems to prevent further entries or modifications to the general ledger after a specific period, such as a month-end or year-end close.
Once a GL is locked, no one can make adjustments, add transactions, or post journal entries without special permissions. This ensures that the financial records for that period remain accurate and unchanged.
GL locking is a safeguard that keeps financial records reliable, supports compliance, and improves internal controls over financial data, all while simplifying ongoing accounting tasks.
Key benefits of GL locking
Locking the GL at the end of an accounting period has many benefits, including:
- Data integrity: Locking the ledger after a period close ensures that financial data remains consistent and accurate by preventing unauthorized or accidental changes.
- Error prevention: Locking helps prevent backdated or misplaced entries from affecting closed periods. This eliminates the risk of late adjustments causing discrepancies and affecting reporting accuracy.
- Improved audit trails: Locking the GL reinforces accountability. Only users with specific permissions can make changes post-lock, creating a clear audit trail of who made modifications and why.
- Regulatory compliance: Many regulatory requirements demand that financial data be finalized for specific periods. GL locking ensures that finalized reports, such as those for tax purposes, remain accurate and compliant.
- Simplified reconciliation: By locking the GL after reconciliation, accountants can prevent complications during subsequent reconciliation periods. This helps streamline accounting processes and keeps records consistent across periods.
- Timely close processes: Locking enforces discipline in closing processes, ensuring that teams complete their closing tasks within a defined time frame.
Best practices for different types of GL locking
There are different approaches to locking the GL, like locking by subsidiary, transaction type, or user. Let’s go over the best practices for each type.
1. Locking by subsidiary
For multi-entity organizations, locking by subsidiary helps prevent discrepancies caused by intercompany entries.
- Lock each subsidiary independently: Lock each subsidiary once its reconciliations and adjustments are complete to prevent intercompany entries from affecting the overall close.
- Stagger closing for subsidiaries: Larger subsidiaries might have more complex closing processes, so they can be allowed more time, while smaller entities can be locked earlier. A staggered approach improves efficiency without holding up the global close.
- Finalize intercompany reconciliations before locking: Ensure that intercompany transactions are reconciled and approved across subsidiaries before locking. This ensures accurate consolidation for parent-level reporting.
2. Locking by transaction type
Locking by transaction type can help eliminate late adjustments and ensure appropriate reviews.
- Control critical transaction types: Lock critical transaction types like journal entries, vendor bills, or inventory adjustments as soon as they're reconciled. This prevents late adjustments that could affect the integrity of financial reporting.
- Prioritize risk areas: Transaction types with a higher risk of error, such as manual journal entries or large inventory adjustments, should be locked first after review. For example, set automated workflows to lock once these transactions are approved by key personnel.
- Review transaction status: Ensure that transactions with certain statuses such as "pending approval" or "in transit" are cleared or reconciled before locking them to avoid errors in final reporting.
3. Locking by user
Locking by user prevents unauthorized or accidental modifications after an individual user posts transactions. This is particularly useful for roles that require tight oversight, such as junior accountants or users with limited scope.
- Segment access controls: Give certain high-level users, such as controllers or department heads, the authority to prevent certain team members from entering transactions. This ensures a higher level of accuracy before locking.
- Conduct user-specific audits: Post-lock audits can focus on transactions by individual users, ensuring that any unusual activity can be traced back to the source easily.
4. Locking by role
Role-based locking helps secure transactions entered by specific roles, such as accounts payable clerks, payroll admins, or sales managers. This prevents unauthorized users from modifying critical financial data.
- Segment duties: Implement role-based locks when the users creating transactions are different from those approving and locking them. This helps enforce the segmentation of duties and reduces the risk of fraud or error.
- Provide controlled flexibility: Give flexibility to senior roles (like the CFO or controller) to unlock periods as needed while locking entries for operational roles such as clerks or analysts as soon as the workflow is complete.
5. Locking by class or department
Classes can represent specific departments or functional areas. Locking by class ensures that transactions for each functional area are reconciled independently. This prevents any cross-department changes once a department finalizes reconciliations.
- Create department-specific approval workflows: Set workflows where departmental managers must approve transactions before locking. This ensures the department head is accountable for the integrity of their department’s financial results.
- Create granular reporting by class: Before locking, run class-based variance reports to analyze key financial metrics for each class. Once locked, these reports should provide a solid foundation for month-end review.
- Reconcile class-level allocations: Ensure that all class-based allocations (e.g., overhead or revenue splits) are reviewed and reconciled before locking the class to avoid any downstream reporting issues.
7. Locking by location
For businesses with multiple locations or branches, locking by location ensures that each site’s transactions are reconciled independently.
- Create location-based interdependencies: Ensure that any inter-location transactions are reviewed and approved before locking, especially if there are shared services or supply chain dependencies across locations.
- Enforce local compliance: For businesses operating across regions with varying compliance requirements, locking by location ensures that local financials are finalized and compliant with regional regulations before they’re consolidated.
Implement GL locking with NetClose
Implementing GL locks across subsidiaries, transaction types, locations, and more will help your business simplify the close. But to do so, you need the right close accounting software that offers flexible locking capabilities.
NetClose for NetSuite allows you to enforce locks that align with your business needs. Each locking action generates an audit trail, ensuring that all locks are fully traceable and accessible during audits or financial reviews.
These powerful locking features help companies transform the month-end close process into a streamlined workflow that accounting teams no longer dread.
Ready to discover how NetClose can bring precision and accountability to your close process? Take a self-guided tour or reach out to our team for a personalized demo.
