Using spreadsheets for reconciliations-an obsolete, risky practice.

• Author: Tucker, Therese
• Position: IT MANAGEMENT

Account reconciliations are considered a critical key control for ensuring financial statement accuracy. However, they can only succeed if they are meeting their purpose: Assessing the validity, correctness or appropriateness of an account balance at a specific point in time, documented by relevant calculations, clear and complete explanations and copies of supporting documents.

The following focuses on the inherent risks and issues with manually preparing account reconciliations, the benefits a company can expect from automating this process and a best-practices approach to implementation to ensure optimization and a significant return on investment.

Assessing the Company's Reconciliation Situation

Left in an uncontrolled, manual environment, reconciliations can cause difficulties for companies--from overtime and poor employee morale to large adjustments and material weaknesses. Even if done correctly, a spreadsheet-driven account reconciliation process is still manual and requires extensive labor hours and audit effort to complete and properly document.

It is true that the more complex an organization--one with multiple and remote locations, foreign currencies and disparate source systems, for example--the greater the benefit of going beyond traditional accounting and finance systems and implementing account reconciliation technology. Yet, regardless of a company's size or requirement to comply with the Sarbanes-Oxley Act of 2002 or other regulations, finance, accounting and compliance executives will benefit from having greater visibility into their financial close process and enhanced control over the quality and completeness of their account reconciliations.

Many companies have already taken advantage of this relatively new technology, including organizations around the world that are subject to local statutory and international reporting requirements. However, a great number of organizations still have a strong reliance on paper and email as well as retyping information for account reconciliations, undermining the use of accounting staff. In addition, requesting, gathering and copying reconciliations wastes auditors' time that could be better spent testing internal controls.

The sidebar, Challenges of a Manual Account Reconciliation Process, to the right, lists some of the issues weakening internal control over these companies' general ledgers. By utilizing a mix of technology and process improvement, a company can redirect precious staffing resources to value-focused analytical activities while also enjoying cost reduction. Simple cost/benefit analyses can be developed around staff and manager time savings, reduced paper and storage needs and lower audit fees and travel costs.

Benefits of Automating Account Reconciliation

Streamlining and...