The Perfect Reconciliation Audit in 4 Easy Steps – Accounting Best Practices

With a perfect reconciliation audit you have the tools and safety net to stay compliant with even the strictest accounting regulation.

The International Financial Reporting Standards are converging on the toughest regulatory act: the American Sarbanes-Oxley (SOX) Act of 2002. SOX, requires a company to have internal control mechanisms in place to catch any potential errors to avoid financial misstatement. If an external auditor finds an error, then the business must prove that their internal controls would have caught the error.

The only way a business can be sure that their account reconciliation complies with this strict regulation is to create a perfect internal reconciliation audit process. This involves gathering both quantitative and qualitative data to find not only material errors but also the potential for material errors.

Four steps to a perfect reconciliation audit

Step 1: Improve financial planning

As the old adage goes: ”Failing to plan is planning to fail.”

To effectively complete your reconciliation audit it is essential that you carry out a preliminary assessment of the environment you are auditing and the scope of your investigation. In other words, find out what you already know about the reconciliation and monthly close processes, your strengths and weaknesses, and establish limits to what you need to explore. A task without limits can become never-ending.

Discuss with your department about their goals and objectives, identify obvious risks and the existing controls that serve to mitigate that risk, and map out the processes that you will be investigating.

Step 2: Rationalise with an analytical review

As Sherlock Holmes once said: ”It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”

Take heed – begin your investigation by collecting data from your software. A recent survey of finance professionals by Adra reveals that, for the majority of financial departments, this software is going to be an Excel spreadsheet and/or an ERP solution.

With your existing data in-hand you are able to develop a concrete focus for your test work, grounded in the reality of hard facts rather than pure theory.


Step 3: Discovering the vital details

The Turkish author and playwright, Mehmet Murat Ildan, once said: ”Little details have special talents in creating big problems!”

How very true – and why it is essential to review all the little details supporting the items noted in the analytical review process. It is these little details that will open up your enquiry to the bigger causes for concern – so never ignore or underestimate them. Follow these details and see where they lead. It could be that the error was simply caused by a typing mistake upon data entry (as many are) or it could lead to something much bigger, like systematic issues with your invoicing.

Step 4: Perfect your financial reporting

”No matter how good you get you can always get better, and that’s the exciting part.” – Tiger Woods.

Reporting to key members of the department, and particularly to department managers and CFOs is an opportunity to improve based on your findings. The current potential risks operating as you are, and opportunities to refine your reconciliation management and financial close process for the better, should be clearly explained and embraced by your finance department.

A perfect financial close process is always a working progress, and that continual striving for improvement should be built-in to your audit report and future practice.

Enhanced balance sheet reconciliation software Adra Balancer from Trintech can help with both your internal audit process and your continual improvement across the department. It gives financial controllers a clear overview of each stage of the financial close process – from initial reconciliation through governance, risk and compliance safety checks, and on to digital archiving.

Cutting down on the potential for errors and continually improving the financial close process are the two cornerstones of the software, making both auditing and financial close quicker and far more effective.

Discover how Adra Balancer ensures a perfect financial audit and close process.