Bank Reconciliations...Why Do It? |
One of the key questions in assessing the type of help my clients need is, what is the latest bank reconciliation completed? In most cases, there is no affirmative response to this question because no one is focused on whether this function is ever completed or even completed on a timely basis. Most of the focus is on maintaining the budget, preparing monthly board reports and cash flow projections, paying bills, and meeting payroll. As much as these functions are important, the underlying function that ensures most business processes are complete and accurate, is the preparation of the monthly bank reconciliations. Your bank reconciliation when completed will identify transactions that appear on your bank statement and may not have been posted to your general ledger or vice versa. It will also identify errors or irregularities. Have you ever wondered who reviews your bank reconciliation, or the focus of the person reviewing the bank reconciliation? Consider the following points when reviewing your monthly bank reconciliations: - Always review your bank reconciliation when most relevant, that is, in the subsequent month of the reconciliation month.
- Ensure that the bank balance on the bank reconciliation agrees to the bank statement ending balance.
- Ensure that there are no significant unidentified transactions as reconciling items on your bank reconciliation. Always obtain clarification of such items and insist that the appropriate supporting documentation be attached.
- Ensure that the outstanding check list is complete and accurate by spot checking at random that the checks documented as outstanding on your bank reconciliation do not appear on your bank statement. Review from time-to-time outstanding checks that seem to be outstanding for prolonged periods of time.
- Ensure that all deposits in transit are on the bank statement in the following month. Always investigate deposits in transit that seem to be outstanding beyond the subsequent month of the reconciliations.
Your auditor in most cases will not start or complete your audit knowing that your bank reconciliations have not been completed. Keep in mind that your bank reconciliations are there to ensure that all transactions between your general ledger and your bank statements have been identified, considered, and recorded if they are valid transactions. If your bank reconciliations have not been completed, that tells your auditors that your general ledger may be missing transactions, and there is no way to prove otherwise until the bank reconciliations are prepared. This will cost you time and money because your auditors may have to suspend their fieldwork until the bank reconciliations are completed. This delays your audit completion time. Remember as simple as bank reconciliations may seem, they ensure the completeness and accuracy of your financial reporting system and mitigates the risk of errors or irregularities. Please contact me with questions or comments or if you simply need help with this function. | 