Both internal and external audits are essential to the organization for effective risk mitigation, so it is crucial to ensure that they are done properly. The bank reconciliation process, in particular, helps to identify any financial gaps or discrepancies and should be performed internally at least once a month and once per year by an external auditor.
Discover seven essential steps for auditing your organisation’s bank reconciliation statements.
CHECKLIST FOR AN IN-HOUSE BANK RECONCILIATION AUDIT
- Gather your bank statement, general ledger, and bank reconciliation documents for the month you’re auditing.
- Compare the final figures on your reconciliation document to that account’s bank statement. The amounts should match.
- Check the final figures on your bank reconciliation document against your general ledger totals and ensure they match.
- Calculate the difference between your bank statement ending balance and your general ledger total. Your bank statement should properly reflect the difference.
- Match transactions from your bank statement and general ledger account. Each transaction in one document should have a corresponding transaction in the other. To avoid confusion, mark these off as you go.
- Highlight any non-matching transactions between your general ledger and bank statement. These items are ‘reconciling’ and should be accounted for in your bank reconciliation document with a full explanation for the discrepancy. These items are usually the result of funds that have not yet cleared or checks that are waiting to be cleared.
- Double-check that the difference between your bank statement and general ledger is properly accounted for.
THE PROBLEM WITH A MANUAL AUDIT
Auditing the organisation’s bank reconciliation documents by hand is both tedious and prone to human error. What if the auditor accidentally misreads a figure? Or misses a gap in the numbers? Even though accountants are highly trained and sensitive to numbers and errors, they are human and will inevitably, unintentionally overlook something.
Even though 53% of the respondents of the Forrester Study were concerned about spreadsheet risk, almost 50% of them also solely relied on the tool for their auditing and controls.
It’s time to evaluate a new tool, not only for an effective control framework and audit process but for the balance sheet reconciliations overall. The accounting department is responsible for mitigating risk for the organisation, not adding to the concern.
A BETTER ALTERNATIVE: TRADITIONAL RECONCILIATION PROCESS VS. A RECONCILIATION TOOL
Reconciliations form the foundation of the entire financial close, which means that they are also the most time-consuming. With traditional reconciliation methods, accountants must review and reconcile each account and statement individually. A process like this can take hours or even weeks to perform, and more time on top of that to go through and audit later on.
An automated reconciliation tool not only simplifies the process itself but the audit as well.
First, financial automation is applied to rule-based, repetitive activities— which is exactly what the reconciliation process is. Rather than manually reviewing and reconciling accounts, the system automatically reconciles based on pre-determined criteria.
Second, if the system detects any discrepancies or suspicious activity while reconciling, it flags those accounts and notifies an accountant. Now, the accountant can go through the exceptions and figure out the source of the error and how to prevent it from happening again in the future.
Lastly, an automated audit trail is generated alongside reconciliations and task completion. The audit trail includes a history of supporting documentation along with all activity that happens throughout the process. Whether for an internal or external audit, an auditor-only view can be created so that the viewers can only see the information required for the audit.
Accountants don’t have to spend the majority of their time reconciling by hand and auditors no longer have to sift through piles or complicated document reservoirs to find the information they need.
ADDITIONAL BENEFITS OF AUTOMATED BANK RECONCILIATIONS
Investing in an automated reconciliation tool gives accountants a large amount of their time back; how better to leverage this time than prioritizing strategic activities like further mitigating risk or gathering data analytics? Accountants can now support the organisation’s future goals and growth rather than just cranking out the reporting every month.
“Adra Task Manager and Balancer allow us to easily track our journal entries, our reconciliations, who’s responsible for what, and then who reviews and approves it along with comments. So when we go through our audit, it is super easy to track everything.” – Genesis Systems
Leaning on financial automation delivers more value to the organisation each period than depending on frustrating manual approaches. Explore how Adra can simplify your reconciliation process to leverage all these benefits for your organisation.
Written by: Ashton Mathai