Closing the Gap in the Fourth Quarter
As the calendar year draws to a close, many companies are scrambling to review previously recorded transactions and reconcile accounts to prepare for external audits and financial result reporting. During these economically turbulent times, the G&A function, including the accounting and reporting department, can suffer the most—often plagued by turnover, attrition, and layoffs. Understaffed finance and accounting organizations are stretched thin, raising the likelihood that only the highest priority transactions will receive close attention.
Increased volume coupled with a lack of resources can lead to unintentional mistakes or missed opportunities to “close the gap.” Staffing issues leave little time for resources to get up to speed on unfamiliar tasks, increasing the risk that everything from routine to complex transactions could be recorded incorrectly. To combat this risk, one of the best detective controls is back-end account reconciliation.
Account reconciliation does not need to be overly complicated. Instead, get back to basics by applying deep knowledge and understanding of fundamental accounting functions at every step of the process.
- Detect data entry errors: Account reconciliations are designed to identify and correct data entry errors before they become financial statement errors.
- Minimize risks resulting from employee turnover: Turnover inevitably leads to inconsistency in recording similar transactions. Identify and address inconsistencies before they become misstatements by adhering to a well documented account reconciliation process.
- Ensure that unusual and non-recurring transactions are recorded appropriately: Account reconciliations with appropriate management review are designed to identify unusual activity and provide comfort that entries have been recorded correctly.
- Validate significant account fluctuations between periods: An effective internal control structure will identify explanations for account balance variances. A fluctuation analysis based on unreconciled accounts does not provide the level of reliance required for these types of analytical procedures.
- Assure the external auditor that the control environment is operating effectively: External auditors rely heavily on completed account reconciliations. The more significant accounts that remain unreconciled, the more likely it is that the auditor will expand the scope of testing procedures and inquiries.
Fourth quarter and year-end financial reporting reviews can improve your financial reporting accuracy and reduce the risk of unnecessary financial restatements or harm to reputation. A formal policy and execution of a year-end transactional review and reconciliation process should be seriously considered. To learn more about Year-End Account Reconciliation, please contact us at reconciliation@morganfranklin.com.
Related Resources: MorganFranklin Solutions
Financial Restatement Services: Complicated revenue models, transaction complexity, and other reporting challenges expose the risk of accounting irregularities and restatements, putting tremendous pressure on finance teams. To learn more about our financial restatement solutions download the PDF (60kb).
Statutory Account Outsourcing Services: Statutory Account Management is a variable demand and cyclical activity that requires highly specialized resources to manage a complex, ever-changing regulatory environment. To learn more about our statutory accounting solutions, download the PDF (156kb).
How We Can Help
For a decade, MorganFranklin has worked with financial executives to tackle critical accounting, reporting, and risk management objectives. Our teams carry certifications and degrees such as CPA, CIA, CISA, MBA, and PMP, and possess an average of 20 years of experience at manager and higher staff levels. With deep roots in public accounting, you can trust MorganFranklin to work extremely well with your external auditor and advisors.
To learn more about Year-End Account Reconciliation, please contact us at reconciliation@morganfranklin.com.
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Issue
The mounting pressures during the fourth quarter and year-end financial reporting cycles in a year of operational turbulence and employee turnover can lead to inaccurate recording of transactions and open the door to financial misstatements.
Relevance
An experienced accountant can "close the gap" by applying a formal policy of transactional review and reconciliation that includes risk assessment, probability of financial misstatement, and an understanding of accounting principles that minimize the risk of material modification.
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