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General Ledger Account Reconciliations…

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Presentation on theme: "General Ledger Account Reconciliations…"— 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 21st 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 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.

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

5 What 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.

6 Definition of a reconciliation
Validity An 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.

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

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

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

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

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

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

14 Help - Tutorial

15 Standardization 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. Staff Manager Feedback

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

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

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

20 Solutions 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 process Excel Workbooks Access Database Programs Specialized Process Control Software Manual Checklists

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

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

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
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 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

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 is increasing while many companies’ focus is decreasing or remaining stagnant Auditor Focus

26 Leading Practices Drive remediation consistently across all locations
Templates Visibility Monitoring Consistent Process enabled by standard reconciliation templates End-to-end process visibility and commitment by Senior Management Centralized Monitoring and Testing to assure continuing quality Workflow Risk Adjustments Automated Messaging to assure timely notification of staff regarding due dates and delinquent tasks 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

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!
Thank You ! Account reconciliations… the easy way! RecWizard 2700 Neilson Way – 1233 Santa Monica, CA 90405

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