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- 1. 1 Confidential. All trademarksappearing herein belong to their respective owners. Reconciliations Overview Location: Hyderabad
- 2. 2 Confidential. All trademarksappearing herein belong to their respective owners. What is an Account Reconciliation Why Account Reconciliations are critical What is controllership When an account in not reconciled What is a reconciled account Steps to reconcile the account Download Inputs Match GL and back ups Itemize open items Research and Resolve Report out Puzzle Clues Variances Example of a reconciliation-Cash reconciliation Steps to a cash reconciliation Check points in a cash reconciliation Quiz Contents
- 3. 3 Confidential. All trademarksappearing herein belong to their respective owners. What is an account reconciliation What is an Account Reconciliation? What is the importance of Account Reconciliations? Management in its Balance Sheet asserts that • the assets, liabilities and equity balances exist • the amounts are correctly stated • all material elements are included. The Documented Explanation and Analysis of the Ending Balance of a General Ledger Account . It is infact the process to measure the accuracy of financial data Verify GL Balance = Balance provided by support independent of GL ..Identify and Correct Errors that may exist in GL Balance) How
- 4. 4 Confidential. All trademarksappearing herein belong to their respective owners. It is important that Account Reconciliations be performed properly to ensure the balance sheet is properly stated and that we are representing accurate numbers to the U.S. Securities and Exchange commission (SEC), other governmental bodies, and our shareholders.
- 5. 5 Confidential. All trademarksappearing herein belong to their respective owners. Salomon Brothers Case (1994…with SEC) •Top Sided Entries made to match GL balances with Estimates •Errors made in entering data in Operating systems •Unreconciled Accounts •Overstatement on Income and Assets in Books •Thorough, timely Account reconciliations not performed •Inadequate supporting documentation •Sec 13(b)(2) of SEC Act violated – “Accounts not accurately & fairly reflecting the transactions & disposition of Assets” Write Off Un reconciled Balances USD194 MM Failures Identified by SEC Account Reconciliations Basis for Reliability and Completeness of Financial Information - SEC
- 6. 6 Confidential. All trademarksappearing herein belong to their respective owners. Why are account reconciliations critical • Protect Stockholders Interests • Comply to SEC Requirements & Taxing Authorities • Accurate General Ledger Balance & Better Understand the Financial Statements • Support Business Decision • Identify & Guard Against Fraudulent Activity • A Key Controllership Responsibility • Comply with SOX 404 Certification (Internal Control)
- 7. 7 Confidential. All trademarksappearing herein belong to their respective owners. What is controllership NO Ambiguity!! Uncompromised, value-added results you can trust: Decisions based on sound economics – risks vs. returns Accurate forecasts, execution and reporting Quality Processes • Integrated, repeatable, timely 6 processes • Underwrite expectations • Reconcile the accounts Winning, with Winning Processes Meet Expectations, Stay In Bounds Integrity • Comply • Maximize returns on invested capital • Safeguard assets Credible Communications • Reliable metrics, forecasts, reporting and analysis • Expectations/Reality • External reporting
- 8. 8 Confidential. All trademarksappearing herein belong to their respective owners. When a reconciliation is not performed If a reconciliation is not performed, it can lead to the following consequences: Inability to explain variances which can lead to potential write offs which in turn can lead to financial losses Inability to certify account balances for Tax Authorities, Government Authorities, and Company Stakeholders Inaccurate GL accounts which may not reflect the proper balance Inability to support business decisions Inability to identify root causes of errors leading to recurrence Failure to detect fraud and fraudulent activities Sub-system accuracy cannot be checked
- 9. 9 Confidential. All trademarksappearing herein belong to their respective owners. What is a reconciled account Where the ledger balance is backed by an independent source Where the ledger balance matches the independent source Where the difference between the ledger balance and the independent source can be explained and acted upon Where the reconciliation is completed in a timely manner Where there are no long pending unresolved issues Reconciliations are reviewed
- 10. 10 Confidential. All trademarksappearing herein belong to their respective owners. Steps to perform a reconciliation Download Inputs Match GL & Back ups Itemize Unmatched Items Research & Resolve Report out
- 11. 11 Confidential. All trademarksappearing herein belong to their respective owners. Download Inputs Download Inputs External Sources Sub Systems Worksheets Bank Statements, Balance sheets, Invoices AP system, Portfolio systems, Policy admin systems Bad debt provisions, Reserve calculations, Goodwill
- 12. 12 Confidential. All trademarksappearing herein belong to their respective owners. Match GL and Back ups Match GL & Back ups Automated tick and tie Manual matching Comparison with multiple back ups Through a tool AP system, Portfolio systems, Policy admin systems Bad debt provisions, Reserve calculations, Goodwill
- 13. 13 Confidential. All trademarksappearing herein belong to their respective owners. Itemize the unmatched/open items Itemize Unmatched items Classify variances List variance Classify the variance: Part of independent source but not part of ledger or vice-versa etc List them item wise, instead of clubbing all the variances
- 14. 14 Confidential. All trademarksappearing herein belong to their respective owners. Research & Resolve Research Resolve variances Track the generating Source Receive Feedback Identify what the variance is, journal entry missed, additional entry, no back up for the variance etc Receive feedback from the person who Posted the journal, or from the bank Regarding a transaction etc…to identify the action plan Follow up Follow up to locate the source to clear the mismatch
- 15. 15 Confidential. All trademarksappearing herein belong to their respective owners. Report out Research Resolve variances Complete the reconciliation template Make sure the reconciliation is complete in all respects Make sure its as per business metrics Make sure that the reconciliation is as per the metrics defined by the business
- 16. 16 Confidential. All trademarksappearing herein belong to their respective owners. Reconciliation terminology Z L Q R A M A S S E T S R N I V R E P O R T O U T D M A I T E M I Z A T I O N A B D F M C V W J K S M C T I C O P R O E R N A J Q C L F N O P E N I T E M S H I R T Y G S B C G J K L I T W A S R E Q U I T Y P N I T Y R E N J G R L S G G E N E R A L L E D G E R Y S Q T B X T U F E Y N E
- 17. 17 Confidential. All trademarksappearing herein belong to their respective owners. Clues What are the 3 main heads under the balance sheet? What do you do to ensure that the balance sheet is properly stated and accurate numbers are represented to the U.S. Securities and Exchange Commission (SEC), other governmental bodies, and shareholders In the reconciliation process, what is the step of comparing the GL and the independent source document called What do we call the entries in the GL that show variance when compared with the independent source document What do we call the process of breaking up open items into the individual components comprising of the variance What is the final step in the reconciliation process
- 18. 18 Confidential. All trademarksappearing herein belong to their respective owners. Variances Timing Difference Mapping errors Adjustment journals in GL Postings to incorrect accounts Miss out of a journal Incorrect journal Incorrect amount posted
- 19. 19 Confidential. All trademarksappearing herein belong to their respective owners. Example of a reconciliation-Cash reconciliation Types of cash accounts Clearing account Disbursement account Zero balance arrangement account Cash in transit account Payment account Collection account
- 20. 20 Confidential. All trademarksappearing herein belong to their respective owners. Steps in a cash reconciliation Funding From Corporate Receipts from customer Bank Disbursement Cash Applied Journal Done Operating System Reconciliation
- 21. 21 Confidential. All trademarksappearing herein belong to their respective owners. Check points in a cash reconciliation Is the description indicative of the nature of the account, which can be Zero Balance Account (ZBA), Cash Concentration Account, and Cash Pool Account? Is there segregation of duties with respect to Cash Disbursement Team and the Approver? Is there any balance in ‘unidentified/unapplied’ accounts? Is the GL balance supported by sub-ledger details/bank statements? Are all adjustments to cash account supported by authorized documentation? Is there any disconnect in amounts between GL Balance and Bank Balance and if so, are they supported with documented explanations? Are all Manual Journal Entries (MJEs) recorded to account for transactions after the cutoff date and subsequently reversed supported with a documented S OP in place? Are all ‘checks issued but not presented’ analyzed for ageing and against the applicable escheatment policy
- 22. 22 Confidential. All trademarksappearing herein belong to their respective owners. Quiz Instructions: Write down the answers of the questions in the space provided here. Time: 20 minutes 1.How does GENPACT define reconciliation? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 2.Why do we perform account reconciliations? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 3.When do we start with reconciliations cycle? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 4.What do you understand by ‘Open Item’? Checks issued but not yet presented in bank should be treated as open items, is this statement true or false? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________
- 23. 23 Confidential. All trademarksappearing herein belong to their respective owners. 5.What is the purpose of reconciling Accounts Payable set of accounts? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 6.What do you understand by Itemization of Open Item? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 7.List the steps performed in the reconciliation process. _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 8.What is the difference between an open item and a timing item? _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________
- 24. 24 Confidential. All trademarksappearing herein belong to their respective owners. 9.List the 8 account categories in the balance sheet. _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________ 10.State the likely independent source used for the following account categories: · Inventory · Property Plant and Equipment · _____________________________________________________________________________ _____________________________________________________________________________ _____________________________________________________________________________
- 25. 25 Confidential. All trademarksappearing herein belong to their respective owners. Training Team – Merrill Lynch www.genpact.com Thank You Confidential. All trademarks appearing herein belong to their respective owners.