As we put another calendar year in the books and start closing out year-end accounting records, now is a great time to revisit one of the key components of the financial close process: account reconciliations. By performing proper account reconciliations, businesses can prevent a lot of material errors that can occur on their financial statements. Proper account reconciliations create the basis on which an efficient and accurate financial close process takes place. Having an accurate financial close process will, in turn, give a business owner the proper information to evaluate business performance, support organizational decisions and meet external reporting requirements. Accuracy in account reconciliations will, therefore, lead to accuracy in the financial close process, and in the financial statements. The following is a list of best practices in account reconciliations as part of the financial close process:
- Completeness. Make sure that all appropriate accounts are reconciled. Have a company-wide policy for completing account reconciliations to ensure consistency. Also, make sure to have proper documentation within reconciliations, including documentation of the timing of clearing for reconciling items. Remember, the reconciliation should paint a picture of what is in an account at that moment in time.
- Accuracy. Make sure the person performing the reconciliation has a good understanding of what the account is used for and the proper information to support the balance of the account.
- Timeliness. Set due dates, and have a system in place to track the status and completion of each reconciliation. Having reconciliations completed on time supports an efficient close process. Also, make sure to review reconciliations in a timely manner to be sure they have been completed properly.
- Support accounting principles. The process of account reconciliations should support the accounting principles associated with the account, such as historical cost or matching. Reconciliations should also support company policies related to the specific account.
- Review for improvements in the reconciliation process. It is also important to constantly be reviewing your process and implementing changes where they are necessary, to become more accurate and efficient.
Account reconciliations are often taken for granted, but are a very important control. They are used to control the accuracy and efficiency of the financial close process, and the financial statements themselves. It is important that the reconciliation process is performed accurately, and in a timely manner. Also, make sure that the reconciliations process is always being improved upon. The reviewer should provide continued feedback to the preparer. Furthermore, feedback from preparers should be encouraged on how to improve a specific reconciliation or the reconciliation process as a whole.