Account reconciliation remains an underappreciated internal control over financial reporting. Accelerating the process can help companies identify and correct errors before they become a problem, helping to improve the financial closing process, deter fraud, and ultimately add value to the organisation.
Account reconciliations and analyses are often misunderstood and thought of as routine, low-level activities which add little value. In reality, they are instrumental in identifying accounting errors and omissions, including fraud, and ensuring the accuracy and completeness of financial information. If done right, a solid account reconciliations process can not only reduce the risk of having to redo work, but significantly reduce external audit costs.
According to Kelly Darren, known in the industry as the “rock star” of account reconciliations, there is a huge black hole existing between account recons and financial statements. When account recons are happening in a separate system from the financial reporting process, data can easily get out of synch, causing delays in the close process and data integrity issues.
There are some easy ways to improve the account reconciliation process and related controls. For example, to help balance limited resources and time constraints, arrange the risk profile of accounts using high, medium or low ratings. You can also calculate risk profile using key criteria such as account volume, complexity, materiality, judgment used, routine vs. non-routine transactions, systems involved, and so on.
Completing high and medium risk account reconciliations monthly can also improve the process, while low risk accounts can be completed quarterly or even semi-annually. It is also important to provide standard operating procedures to employees on how to prepare and document the necessary data, and a standard reconciliation template helps to ensure consistency.
While these measures are important, the easiest way to attack the challenges in account reconciliations is with a solution that is completely unified with the financial consolidation and reporting processes. An EPM solution that enables account reconciliations to be integrated into the financial close workflow, leveraging data that is already at hand, provides an accurate, transparent way for you to understand the “story” of an account. By connecting numbers to business activities and providing explanations through the reconciliation process, a unified EPM solution enables those relying on financial information to make informed decisions.
There are many other benefits to implementing account reconciliations within an EPM suite, not least of which is the fact that it addresses the weaknesses of manual, Excel-based processes through automation. With a manual process, someone is responsible for generating lists of accounts, following up on delinquent reconciliations, and making sure new accounts are assigned. Account reconciliation software puts an end to all of that time spent tracking down individual spreadsheets or folders, creating consistency and reducing errors.
When processes are secure, standardised, repeatable, and wherever possible, automated, compliance also becomes easier. An account reconciliation solution dramatically reduces the risk of misstatement and minimises potential control failures. It also provides a clear audit trail.
