3Presenters: Jeff Adler & Dan Craft Jeff Adler is the President of RecWizard. His career includes 6 years on the audit staff of PwC and over 30 years of controllership, financial management and consulting experience. He founded RecWizard in 2001.Dan Craft is a Senior Manager in the Technology and Risk Services group for Ernst & Young in Troy, MI. His recent experience includes Sarbanes-Oxley process control evaluation and re-design.
4Today’s Agenda 1 2 3 4 What is an account reconciliation Why are reconciliations important3Self-assessment of your process4Define key elements of a good process
5What is an account reconciliation? A – something required by Sarbanes-Oxley that was not important before 2001.D – an analysis of an account balance that explains what the balance is, why it is there, and that it is adequate.B – part of my job duties that wastes time but makes the auditors happy.C – a means of creating stress between my supervisor and me.
6Definition of a reconciliation ValidityAn assessment of the validity, correctness and appropriateness of the account balance…At a Point in Time… at a specific point in time…Clear, Complete Explanations… documented by relevant calculations, clear and complete explanations…Supporting Documents… with copies of supporting documents…Company Policy… in compliance with company policies.
7Why are Reconciliations Important? Financial Statement AuditGood AccountingSarbanes- Oxley
8Financial Statement Audit Review Business ProcessesIdentify Key ControlsDocument and Test ControlsAssess Management ProcessResults of the auditor tests and observations will determine the amount of year-end validation that is required.
9Sarbanes-Oxley Requirements Corporate Governance Since 2002TransparencyAuditor AttestationManagement CertificationTimelinessAccuracyReliabilityClearly documented processes are a critical part of Sarbanes-Oxley compliance.
10Good Accounting! For non Sarbanes-Oxley companies… Timely Correction of Accounting Errors – more accurate Financial Statements and improved reliability and accuracy.Sarbanes-Oxley type requirements are growing Many large companies are requiring compliance with Sarbanes-Oxley even though they are privately held.
11Assessing Your Process How often do you require reconciliations to be prepared- Are all accounts reconciled on that scheduleDo you rely on your account reconciliation process as a key control- Do your auditors rely on your process as a key controlAre reviews and approvals completed and documentedHow much training do you provideWhat do You do?Are reconciliation processes included as part of your annual review process- Do you address and track timeliness and quality issuesHow soon are reconciliations required to be completed- Do you complete them during the close processAre policies readily available to all staffWhat senior managers take an active role in the process
12Best Practices for Reconciliations Monitor & ReviewDocumentStandardizeReview and monitor to maintain a continuous control environmentTrainProper supporting documents, comments and calculations create auditable and verifiable reconciliationsAdd efficiency and consistency by providing standard formats or templatesMake sure your staff knows how to prepare reconciliations that are qualitative – not quantitative
13Qualitative vs. Quantitative Investigative ProcessAnswer these investigative questionsWhat?When?Why?Who?How Much?Good ReconciliationsGeneral Ledger
15Standardization Staff Manager Prepare Review Feedback Provides the ability to maintain communication and feedback with clearly defined formats –easier to focus on the content instead of the form of the reconciliation.StaffManagerFeedback
16RecWizard TemplatesSubledger MatchBank AccountCalculated BalanceAmortizable PrepaidAccruable ItemNon-current DebtCurrent DebtGeneral List
17Supporting Documents Bank Statement Invoice Subledger Lease Documents provide support and validation for the account balance.Bank StatementInvoiceSubledgerExternalLeaseInternalExcel WorkbookContractMemo or LetterJournal Entry
18Policies and Procedures Readily accessible policies and reconciliation procedures help make sure processes are documented and not lost as part of staff turnover.
19Real-time visibility to see the status of all reconciliations Review and MonitorReal-time visibility to see the status of all reconciliations
20Solutions for Control Sheets If you don’t use an application like RecWizard, you have many other options to control the progress of your account reconciliation processExcel WorkbooksAccess Database ProgramsSpecialized Process Control SoftwareManual Checklists
21Dan Craft – Ernst & Young Historical PerspectiveCurrent State ObservationsProcess ImprovementKeys to Success
22Current State Observations Decentralized Execution and TestingSegregation of Duties IssuesUnidentified DifferencesNo Visibility with Senior ManagementDelinquent Aged ItemsManually IntensiveNot Performed TimelySusceptible to Human ErrorLack of Training
23Current State Observations These issues, if left unaddressed, can very quickly lead to SOX compliance and financial statement risksAdverse Opinion from Auditors Regarding Internal ControlsRestatement of Financial StatementsNo Company can afford to ignore these issues
24Historical Perspective The degradation of the account reconciliation process did not happen overnight. There has been a series of events that has led to the current state in most companies.Pressure to reduce month-end closing cycleDiminished priority on account reconciliationsShift in policies regarding timing of reconciliation preparationDeadline moved to “immediately following” the hard closeLack of senior management visibility lead to “deadline creep”Deterioration to not completing reconciliations at all – or at best, very poorly
25Historical Perspective StaffingDemands on accounting functions increasing at higher rate than number of personnelTrainingLack of training because “everyone knows how to reconcile an account”SOXSarbanes-Oxley requires significant accounts to be reconciled prior to issuing financial statementsAuditor focus is increasing while many companies’ focus is decreasing or remaining stagnantAuditor Focus
26Leading Practices Drive remediation consistently across all locations TemplatesVisibilityMonitoringConsistent Processenabled by standard reconciliation templatesEnd-to-end process visibility and commitment by Senior ManagementCentralized Monitoring and Testing to assure continuing qualityWorkflowRiskAdjustmentsAutomated Messagingto assure timely notification of staff regarding due dates and delinquent tasksMateriality Based Risk Assessment to prioritize staff effortsQuantify Potential Adjustments prior to issuance of financial statements – particularly SEC reports such as the 10-Q and 10-K
27Keys to Success Executive Support and Tone at the Top Sufficient Resource CommitmentTraining – at all levelsFocus on root cause rather than symptomsTime invested up front will translate directly to the success and benefits of a good processImprove processes prior to technology introduction
28Account reconciliations… the easy way! Thank You !Account reconciliations… the easy way!RecWizard2700 Neilson Way – 1233Santa Monica, CA 90405