When reconciling financial data, organizations go through a long and tedious process — a process that creates the foundation for the rest of the financial close.
Why is account reconciliation important?
The account reconciliation process gives finance teams confidence that their information is reliable and allows for the chance to see any mistakes or discrepancies that occur. It is the first step in an organization’s financial close process.
By using manual reporting methods, the account reconciliation process runs the risk of errors via spreadsheets and a lack of visibility that create further problems down the road. It creates significant challenges in general, which increases risk — as we’ll discuss below.
Common Reconciliation Challenges
Even as technology has changed and evolved and dramatically improved, many F&A professionals continue to rely heavily on highly manual processes and tools like spreadsheets to manage the highly intricate and detailed reconciliation process required for the modern-day organization. Due to this reliance on spreadsheets, organizations continually find themselves buried in a mountain of work and running behind on deadlines while spending an inordinate amount of time and resources to maintain the highly manual process.
The most common problems associated with a manual reconciliation process are:
- Low visibility and transparency
- Lack of controls and efficiency
- High risk, cost and time
With these problems, it is easy to see how errors at the beginning can translate into bigger issues as the financial close continues. The good news is that today there are better options to choose from, that can help organizations leave manual reconciliation processes behind, ensuring a more accurate and timelier financial close. From standardization to automation, organizations can strengthen their foundation for the reconciliation and close process and reporting overall.
Tips to Create a Strong Account Reconciliation Framework
Tip #1: Improving Controls
Reconciling financial data is a process that doubles as an internal control capable of mitigating errors in balance sheet accounts. The transparency and efficiency of your reconciliation process is key to detecting misstatements in advance of filing deadlines. Any errors that are identified by your auditor and not initially by your internal team point to material weakness in the overall internal control environment.
The primary tool used by many organizations from the reconciliation process all the way to month-end close is spreadsheets, even though this is manual and not best practice today. When spreadsheets get shared across a team, it becomes harder to track changes and see any real-time status into the progress of your financial close process overall. Furthermore, a team spread amongst many locations, or working remotely can contribute to a higher lack of visibility, which means managers are doing more micro-managing to get status updates or know where the team is with deadlines.
To solve this problem, organizations must improve their internal controls. This can be done by creating a standardized process for your account reconciliation, and testing controls through financial automation software. Account reconciliation controls are integral to the rest of your financial close — having accurate and timely reporting results in higher efficiency and transparency within your organization.
Tip #2: Standardizing Procedures
When looking at the close process, efficient and effective reconciliations set the foundation for all subsequent financial close activities. To ensure close tasks are completed on time and are ready to be approved and reviewed by the appropriate parties, establishing some standardized practices is key. When standardizing the Record to Report process, teams now have routine procedures that help streamline the close. With standardization, organizations can have confidence, knowing that close tasks are completed with accurate data and enough time for the appropriate parties to both approve and review. Additionally, there are many benefits of the reconciliation process when implementing standardization, such as:
- Increased visibility and transparency
- Lower risk and cost
- Clear responsibilities and procedures
- Risk-based approach that analyzes the impact of items
- Automatic workflows that route to the right personnel for reconciliation preparation and approval
Without a standardized account reconciliation process, organizations are at risk for increased errors within their financial close. These errors can go undetected until much later, resulting in high risk when reporting and increased time delays. When organizations invest in a standardized account reconciliation process, they set themselves up for an accurate and efficient close, which saves time and lowers risk.
Learn more about setting a solid foundation for your close process through automating your reconciliation process by downloading our Ultimate Guide to Account Reconciliations.
Written by: Mikayla Jordan