---
name: accounting-close-variance-explainer
description: "Generates audit-ready flux narratives explaining period-over-period account variances — quantifying the dollar and percentage change, isolating the primary drivers, and writing management-grade commentary suitable for close packages, MD&A support, and auditor requests. Use when preparing flux analysis, explaining balance sheet or P&L movements at month-end or quarter-end close, or responding to auditor variance inquiries."
argument-hint: "[account] [prior-vs-current]"
allowed-tools: ["Read"]
---

# Accounting Close Variance Explainer

## Purpose
Turn a raw period-over-period balance change into a clear, defensible variance narrative that names the driver, quantifies the movement, and reads the way management and auditors expect flux commentary to read. Eliminates the blank-cell problem in the flux template and prevents vague explanations like "timing" that trigger auditor follow-ups.

## When to Use
Invoke this skill when the user asks to:
- Explain a variance or flux between two periods for a specific account
- Write flux narrative commentary for a month-end or quarter-end close package
- Explain why a balance sheet or income statement account moved
- Draft management commentary on account movements for reporting
- Respond to an auditor's question about a period-over-period change
- Prepare MD&A-style or close-review variance write-ups

## Inputs Required
Before starting, collect:
- **Account name**: The GL account or line item being explained
- **Account type**: Balance sheet or income statement (and asset/liability/equity/revenue/expense if known)
- **Prior balance**: The comparison-period figure (with period label, e.g., "Q2" or "prior month")
- **Current balance**: The current-period figure (with period label)
- **Context notes**: What the accountant knows — transactions, accruals, reclasses, one-time items, business events, seasonality
- **Audience**: Internal management review / external auditor support / MD&A disclosure
- **Materiality threshold**: The dollar or percentage level above which an explanation is required (optional)

If materiality threshold is missing, flag variances over 10% or a stated dollar amount and note the assumption. If account type is missing, infer it from the account name and state the inference.

## Instructions

### Step 1: Quantify the Variance
Compute and state the movement precisely before explaining it.
- **Absolute change**: Current − Prior (state as increase or decrease, with sign)
- **Percentage change**: (Current − Prior) / |Prior|, expressed to one decimal
- **Directional label**: Favorable / Unfavorable relative to the account's normal expectation (e.g., higher expense = unfavorable; higher revenue = favorable)
- **Materiality flag**: State whether the variance exceeds the threshold and therefore requires commentary
- Handle edge cases: if prior balance is zero, describe as "new balance" rather than computing an infinite percentage; if the account crossed zero (debit to credit or vice versa), call that out explicitly

### Step 2: Isolate the Primary Driver
Attribute the movement to its cause using the context notes. Classify the driver into one of these categories:
- **Volume/activity change**: More or fewer transactions, units, headcount, or business activity
- **Rate/price change**: Same volume, different price, rate, or cost per unit
- **Timing**: Accrual, prepayment, cutoff, or a transaction that shifted between periods — must specify what shifted and why
- **One-time/non-recurring item**: A discrete event (settlement, write-off, true-up, impairment, gain/loss on disposal)
- **Reclassification/correction**: Balance moved between accounts or an error was fixed
- **Seasonality**: Expected periodic pattern
- **Estimate revision**: Change in reserve, allowance, valuation, or accrual estimate

If the context supports multiple drivers, decompose the total variance into components and quantify each where possible (e.g., "$120K increase = $90K new hires + $30K annual merit increases").

### Step 3: Write the Variance Narrative
Compose the explanation in the standard flux format:
1. **Lead with the movement**: State the dollar and percentage change and direction in the first sentence.
2. **Name the driver**: Attribute the change to the specific cause — never leave it at "timing" or "various."
3. **Quantify the components**: Break the total into its contributing pieces where the context allows.
4. **Note recurrence**: State whether the driver is expected to recur or reverse in future periods.
5. **Cross-reference support**: Where relevant, reference the underlying source (journal entry, invoice, contract, accrual schedule) that substantiates the explanation.

Match the register to the audience: tighter and more technical for auditors, plainer and more business-oriented for management.

### Step 4: Flag Gaps and Follow-Ups
Identify anything that would weaken the narrative or invite a challenge:
- **Unexplained residual**: If the named drivers don't fully account for the variance, state the unexplained amount and recommend investigation
- **Insufficient context**: If the notes don't support a specific driver, produce the best available explanation and list the exact question to resolve it
- **Audit-risk phrasing**: Rewrite any explanation that relies on vague terms ("miscellaneous," "general increase") into a specific, substantiated statement

## Output Format
- **Structure**: A quantified variance summary block, followed by the finished narrative paragraph, followed by a driver breakdown and any follow-up flags
- **Length**: 150–300 words per account (narrative itself 2–5 sentences)
- **Format**: Structured document — summary as labeled figures, narrative as prose, breakdown as bullets
- **Sections**: Variance Summary (change $, change %, direction, materiality) → Variance Narrative → Driver Breakdown → Follow-Ups & Gaps
- **Tone**: Corporate accounting — precise, factual, audit-defensible; no hedging, no filler adjectives, quantified wherever possible

## Quality Checklist
Before delivering output, verify:
- [ ] Dollar change and percentage change are both computed and stated (recompute to confirm the math)
- [ ] The direction is labeled favorable or unfavorable relative to the account's normal expectation
- [ ] The narrative names a specific driver — not "timing" or "various" alone
- [ ] Multi-driver variances are decomposed into quantified components that sum to the total (or the residual is disclosed)
- [ ] Recurrence (recurring vs. one-time / reversing) is stated
- [ ] Any explanation gap or unsubstantiated claim is flagged with the specific question needed to close it

## Notes
- The single most common weakness in flux narratives is attributing a movement to "timing" without saying what shifted and why — always force specificity there
- When the context notes are thin, produce the strongest defensible explanation available and surface the missing detail as a follow-up rather than inventing a driver
- For auditor-facing narratives, favor explanations that point to substantiating support (JE number, accrual schedule, contract) — an explanation an auditor can trace is worth more than an eloquent one
- When explaining income statement accounts, prefer decomposing into volume vs. rate; for balance sheet accounts, prefer explaining the net of additions and reductions during the period

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## How to use this skill

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**Using in Claude.ai, ChatGPT, Gemini, or other AI tools:**

1. Drag this file into a new chat, or copy and paste its contents
2. Send your task or request as your next message — the AI will apply the skill where it fits

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