By now, you probably know that continuous accounting is a transformative concept that enables teams to use technology and process transformation to change how accounting is done. As work is distributed throughout the month, there’s finally time to respond instead of react, there’s time to actually do analysis, and there’s time to continually improve the effectiveness of accounting operations. These exciting benefits often take precedent in discussions of continuous accounting. However, there is another more important benefit that perhaps deserves more attention: managing, avoiding, and eliminating risk.
As much as we’d like it to be, accounting is not an exact science. Mistakes get made, and errors from past periods accumulate, posing a bigger and bigger risk as time goes on. Be honest: How confident are you really, when it comes to the accuracy of the numbers you provide? You don’t know how big of a problem you have. Reconciling accounts accurately is the first place to start reducing the risk of accounting errors.
Alas, account reconciliations don’t exactly generate excitement within finance and accounting teams. They are usually associated with feelings of dread toward another month-end process that is time-consuming, manual, and spreadsheet-driven.
Improving the reconciliations process can have a big impact, accelerating your financial close each month and strengthening what is the first line of defense for fraud detection and balance sheet integrity. Yet this is often low on the list of process improvement.
It doesn’t have to be this way. Technology exists to modernize your reconciliation and close operations and automate your period-end processes. Among many other reasons, such technology significantly reduces errors while speeding up the work, allowing a lot more time for review, investigation, and analysis. That analysis, coupled with the technology, can also give your organization newfound visibility into where things stand, into the quality of your financial statements and the health of your business.
Barely a week goes by without an announcement about an accounting fraud scandal, financial restatement, or the assessment of SEC fines and penalties. Not only does this create migraines and painful costs for an organization, it can destroy public opinion of that company, which is particularly devastating for publicly traded companies.
While account reconciliations are far from glamorous, they play a leading role in the accounting process and deserve far more attention than many companies give them today. You might call them a necessary evil, but they can be the gateway to continuous improvement.
Here are some things to consider on how you can improve this process within your organization.
The importance of doing it right
Account reconciliations are the first tool for detecting fraud and providing assurance that your balance sheet is accurate. The balance sheet provides the readers of the financial statements a picture of the overall financial position of the company. What is the amount of debt? Can it meet its short and long-term obligations? Is it a viable option to invest in?
These, as well as many other questions, are answered by this one statement.
With so much riding on how the balance sheet represents your company, the importance of accuracy cannot be emphasized enough. And its importance is not limited to outside readers of the financial statements. It’s equally important to internal users of this information as well.
Accountants are responsible for providing management with accurate and reliable information so they know how the company is performing. Management relies on this financial information to make key business decisions, such as growth and expansion, hiring of personnel, and investment in sales and marketing campaigns.
In the next blog in this series, I’ll go over why training and education are key to good account reconciliation and how things are currently done.
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