A hard close is a full period-end close in which every account is reconciled, accruals and cut-off are finalised and the period is locked. A soft close is a lighter interim close that relies on estimates and materiality thresholds to produce management figures faster, without locking the ledger.
Hard close and soft close differ on six points:
- Scope: all balance sheet accounts for a hard close, material accounts only for a soft close
- Accruals: invoice-level accruals for a hard close, estimates or run-rates for a soft close
- Reconciliations: every account for a hard close, usually bank, receivables and payables for a soft close
- Period lock: locked after a hard close, reopenable after a soft close
- Frequency: quarter-end and year-end for a hard close, monthly for a soft close
- Audience: auditors, lenders and the tax administration for a hard close, management for a soft close
Most mid-sized companies run a soft close each month and a hard close each quarter or year. The pattern holds when estimates are corrected at the next hard close. Otherwise, the year-end true-up adjustments reveal how far monthly figures had drifted. The amount of those adjustments is a useful indicator of soft close quality.
A soft close still needs controls, chosen for the month. Bank reconciliation, pre-close validation of supplier invoices and unbilled revenue checks carry most of the risk and should stay in the monthly scope. The full sequence of tasks is detailed in the month-end close checklist.
Phacet narrows the gap between the two. When the bank feed is reconciled daily and supplier invoices are validated on arrival, the monthly figures rest on checked data rather than estimates, which is the principle of continuous close control and the basis of month-end close acceleration.
