Define Account Reconciliation
Ready?
Quickly grab a pen and paper and write down your definition of “account reconciliation.”
Chances are, you ended up writing more about what it isn’t, than what it is.
Below is a definition from a PWC paper:
Account reconciliations should be more than a roll forward of activity or isolation of differences. An account should only be considered reconciled when differences have been investigated, proper accounting treatment ascertained, and correcting journal entries (if any) posted to the general ledger or sub-ledger. The account reconciliation should begin by comparing the ending balance in the general ledger with the ending balance in the sub-ledger or supporting detail, and it should finish with a matching adjusted balance for each. Reconciling items should adjust the general ledger balance or the sub-ledger as appropriate.
The definition of “reconciliation” as provided by the New York Society of CPAs is, “comparison of two numbers to demonstrate the basis for the difference between them.”
If you’d like examples of account reconciliation processes, Google those terms and you will likely have many US based university departmental procedures to peruse. Here are the University of New Mexico’s General Ledger Account Reconciliation Guidelines.
The point is that the underlying definition is the same, while the processes, as based upon account type, may differ somewhat. The processes will also differ based on the complexity of the account being reconciled.
If your accounting team is comprised of accountants with experience at different companies, they likely have differing opinions as to what “reconciled” means as well the path to get there.
We recommend you have a clear definition of “reconciled” or “account reconciliation” within your policies and procedures for each account. You may find it best to work with your team to define “account reconciliation.” This will help them adhere to standards and strengthen support of your internal controls.
Of note, ART, our account reconciliation automation solution, makes this easy. Each electronic cover sheet includes a section for policy and procedures. Clients use this section to explain to preparers and reviewers how the account is to be reconciled.