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General Ledger Account Reconciliations… Basic Building Blocks for Good Accounting Controls Presentation for the Greater Milwaukee Chapter of the IMA.

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Presentation on theme: "General Ledger Account Reconciliations… Basic Building Blocks for Good Accounting Controls Presentation for the Greater Milwaukee Chapter of the IMA."— Presentation transcript:

1 General Ledger Account Reconciliations… Basic Building Blocks for Good Accounting Controls Presentation for the Greater Milwaukee Chapter of the IMA

2 Account Wrecks of the early 21 st Century

3 Presenters: 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 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.

4 Today’s Agenda What is an account reconciliation 1 Why are reconciliations important 2 Self-assessment of your process 3 Define key elements of a good process 4

5 What is an account reconciliation? A – something required by Sarbanes-Oxley that was not important before 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. D – an analysis of an account balance that explains what the balance is, why it is there, and that it is adequate.

6 Company Policy Supporting Documents Clear, Complete Explanations At a Point in Time Validity An assessment of the validity, correctness and appropriateness of the account balance… Definition of a reconciliation … documented by relevant calculations, clear and complete explanations… … in compliance with company policies. … with copies of supporting documents… … at a specific point in time…

7 Why are Reconciliations Important? Financial Statement Audit Sarbanes- Oxley Good Accounting

8 Financial Statement Audit Review Business Processes Assess Management Process Identify Key Controls Document and Test Controls Results of the auditor tests and observations will determine the amount of year-end validation that is required.

9 Transparency TimelinessAccuracy Reliability Corporate Governance Since 2002 Management Certification Auditor Attestation Clearly documented processes are a critical part of Sarbanes-Oxley compliance. Sarbanes-Oxley Requirements

10 Good 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.

11 Assessing Your Process Are policies readily available to all staff Are reviews and approvals completed and documented How much training do you provide What do You do? What senior managers take an active role in the process How often do you require reconciliations to be prepared - Are all accounts reconciled on that schedule How soon are reconciliations required to be completed - Do you complete them during the close process Do you rely on your account reconciliation process as a key control - Do your auditors rely on your process as a key control Are reconciliation processes included as part of your annual review process - Do you address and track timeliness and quality issues

12 Best Practices for Reconciliations Train Standardize Document Make sure your staff knows how to prepare reconciliations that are qualitative – not quantitative Add efficiency and consistency by providing standard formats or templates Proper supporting documents, comments and calculations create auditable and verifiable reconciliations Monitor & Review Review and monitor to maintain a continuous control environment

13 Good Reconciliations 1.What? 2.When? 3.Why? 4.Who? 5.How Much? Investigative Process General Ledger Qualitative vs. Quantitative Answer these investigative questions

14 Help - Tutorial

15 Feedback PrepareReview StaffManager 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. Standardization

16 RecWizard Templates Subledger Match Bank Account Calculated Balance Accruable Item Non-current Debt Current Debt General List Amortizable Prepaid

17 Internal External Subledger Bank Statement Excel Workbook Memo or Letter Journal Entry Invoice Lease Contract Documents provide support and validation for the account balance. Supporting Documents

18 Policies and Procedures Readily accessible policies and reconciliation procedures help make sure processes are documented and not lost as part of staff turnover.

19 Review and Monitor Real-time visibility to see the status of all reconciliations

20 Solutions for Control Sheets  Excel Workbooks  Access Database Programs  Specialized Process Control Software  Manual Checklists If you don’t use an application like RecWizard, you have many other options to control the progress of your account reconciliation process

21 Dan Craft – Ernst & Young Process Improvement Historical Perspective Keys to Success Current State Observations

22 Decentralized Execution and Testing Unidentified Differences Segregation of Duties Issues Delinquent Aged Items No Visibility with Senior Management Manually Intensive Not Performed Timely Lack of Training Susceptible to Human Error

23 Current State Observations  These issues, if left unaddressed, can very quickly lead to SOX compliance and financial statement risks  Adverse Opinion from Auditors Regarding Internal Controls  Restatement of Financial Statements  No Company can afford to ignore these issues

24 Historical Perspective Pressure to reduce month-end closing cycle Diminished priority on account reconciliations Shift in policies regarding timing of reconciliation preparation Deadline moved to “immediately following” the hard close Lack of senior management visibility lead to “deadline creep” Deterioration to not completing reconciliations at all – or at best, very poorly 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.

25 Historical Perspective Staffing Demands on accounting functions increasing at higher rate than number of personnel Training Lack of training because “everyone knows how to reconcile an account” SOX Sarbanes-Oxley requires significant accounts to be reconciled prior to issuing financial statements Auditor Focus Auditor focus is increasing while many companies’ focus is decreasing or remaining stagnant

26 Leading Practices Templates Consistent Process enabled by standard reconciliation templates Visibility End-to-end process visibility and commitment by Senior Management Centralized Monitoring and Testing to assure continuing quality Workflow Automated Messaging to assure timely notification of staff regarding due dates and delinquent tasks Risk Materiality Based Risk Assessment to prioritize staff efforts Quantify Potential Adjustments prior to issuance of financial statements – particularly SEC reports such as the 10-Q and 10-K Monitoring Adjustments Drive remediation consistently across all locations

27 Keys to Success  Executive Support and Tone at the Top  Sufficient Resource Commitment  Training – at all levels  Focus on root cause rather than symptoms  Time invested up front will translate directly to the success and benefits of a good process  Improve processes prior to technology introduction

28 Account reconciliations… the easy way! RecWizard 2700 Neilson Way – 1233 Santa Monica, CA


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