Manual vs. Automated Balance Sheet Reconciliations

The Hackett Group found that accountants and financial personnel spend 65% of their time on manual, low-value processes. These processes include reconciliations, meaning accountants are likely to be focusing the bulk of their time on repetitive tasks as they complete the period-end close. The challenges that come from spreadsheets and other manual methods of reconciliations don’t have to impact your entire organization; financial automation solutions can pave the way for many benefits and opportunities to maximize your accountants’ time and effort.

Challenges of Manual Balance Sheet Reconciliations

It’s no question that spreadsheets serve many essential functions for individuals. They can be used to organize a personal budget, accumulate important figures, and more. However, after a certain point, the exclusive use of spreadsheets only becomes burdensome. Spreadsheets were created in the 1980s to manage the budget of a four-person household, not an organization’s financial reporting. Using spreadsheets to perform your organization’s balance sheet reconciliations presents many challenges and risks.

Increase in Spreadsheet Errors

While a useful tool, spreadsheets are notoriously known for being susceptible to errors. In fact, up to 88% of spreadsheets contain errors in some manner. Not only do spreadsheet errors lead to significant consequences if not promptly corrected, but they also increase the risk for your organization. Spreadsheets should serve as a supplementary tool in the reconciliation process rather than being the primary tool used.

Manual vs. Automated Balance Sheet Reconciliations | Increase in Spreadsheet Errors

Lack of Visibility and Control

Executing the financial close with spreadsheets leads to a lack of both visibility and control throughout the entire process. Any changes or adjustments made during the close are often hard to catch until the close cycle is completed. When these changes are caught and corrected after the close, organizations have to release a financial restatement, whether the changes are material or immaterial. An absence of visibility and control over the close process and the resulting financial reports affect all shareholders involved.

Inability to Standardize Data Documentation

When spreadsheets are used exclusively, accountants often resort to formatting their own layouts. As the spreadsheets are shared amongst colleagues and financial leadership, those specific layouts and any broken calculations can cause bottlenecks and errors within balance sheet reconciliations. Once the spreadsheets are compiled to prepare for reconciliations, the process of deciphering different formats and calculations across hundreds of different documents further impedes the financial close.

Manual vs. Automated Balance Sheet Reconciliations | Inability to Standardize Data

The lack of standardization that exists when accounting teams entirely rely only on spreadsheets means accountants are using their time decoding and fixing spreadsheet calculations rather than focusing on strategic initiatives.

Improper Assessment of Account Risk

With spreadsheets and other manual methods of reconciliations, the assessment of account risk is difficult. Instead of prioritizing higher risk accounts, the focus is spread equally across all balance sheet accounts, which increases the organization’s chance that a risk factor might be missed in a key account. 

How Automation Can Help Solve These Reconciliation Challenges

Manual methods of reconciliation often fall short when accountants exclusively rely on them for financial reporting. Financial automation software then takes spreadsheets and ERP systems to the next level, further providing opportunities and benefits for any organization.

Increases Accuracy

Accuracy is key when reconciling accounts; inaccurate financial reporting raises several risks for non-compliance in any organization. Performing the close with financial automation software improves the quality of data used in the reconciliation process. Any inconsistencies and miscalculations are flagged as exceptions, enabling accountants to focus their valuable time on investigating those highlighted exceptions.Manual vs. Automated Balance Sheet Reconciliations | increases Accuracy

Enhances Visibility and Control

Visibility and control throughout the financial close process are essential for accounting managers and financial leaders alike. Obtaining real-time updates into the progress of balance sheet reconciliations enables CFOs and Controllers to visualize how the accounting team is performing on a short- and long-term basis. The ability to follow along as the period-end close is being completed also gives financial leaders the chance to correct any errors or bottlenecks before they result in greater ramifications.

Standardizes Data Documentation

Compiling financial data and supporting documentation in a cloud-based financial automation solution takes the guesswork out of decoding various layouts and calculations within spreadsheets. Moving from spreadsheets to a cloud solution gives accounting teams visibility into all accounts in a centralized location, meaning every piece of data is correctly imported into the software.

Manual vs. Automated Balance Sheet Reconciliations | Standardizes Data Documentation

Not only that but financial automation solutions can streamline your organization’s workflow even further by simplifying the approvals and review process. The quicker accountants can move onto the next step of the financial close, the more time they can spend on value-adding initiatives.

Decreases Account Risk

Using a cloud-based financial automation solution means that accountants can speed up the time reconciliations are performed by allowing the software to automatically reconcile low-risk accounts and flag high-risk accounts based on the pre-defined rules set forth by the organization. When exceptions are brought to the attention of accountants, they can then focus their time on those highlighted high-risk accounts and investigate the discrepancies.

Manual vs. Automated Balance Sheet Reconciliations | Decrease Account Risk

After the culmination of the period-end close, financial automation creates an easy-to-follow activity log for both internal and external auditors. The automated audit trail contains information into supporting documents, attachments, comments, and time stamps, which further simplifies the auditing process. Additionally, an increase in accuracy and matching rates means your organization can effectively mitigate risk and remain compliant.

Instead of allowing these reconciliation challenges to decrease your organization’s productivity and return-on-investment, these challenges can be turned into major opportunities. Learn about how your organization can best navigate the modern face of finance with this eBook.

Manual vs. Automated Balance Sheet Reconciliations | Guide to Reconciliation Management


Written by: Alex Clem