Knowledge Series 25: A Brief Overview of Balance Sheet Reconciliations

Introduction Balance Sheet Account Reconciliation (BSAR) is a crucial financial process used to ensure the accuracy and integrity of an organization's financial records. It involves comparing the balances in an organization's financial statements with the corresponding records and supporting documents. This process is fundamental for maintaining accurate bookkeeping and financial reporting.

What is Balance Sheet Account Reconciliation? BSAR is a systematic process that verifies the correctness of account balances at a specific point in time. This is achieved by documenting relevant calculations, providing clear and complete explanations, and including copies of relevant supporting documents. The BSAR process includes three primary tasks: Reconciliation, Justification, and Follow-Up.

1. Reconciliation: This step involves comparing the period-ending balance in the general ledger with the ending balance in the sub-ledger (in cases of sub-ledger mapping) or with supporting documents (for non-sub-ledger accounts).
2. Justification: This step validates the "true and fair" value of amounts included in the account by substantiating them with relevant supporting documentation, accounting policies, and procedures.
3. Follow-Up: This step identifies outstanding open items, exceptions, and differences in account reconciliation. These are documented and resolved periodically to ensure accuracy.

Importance of Balance Sheet Account Reconciliation Accurate balance sheet reconciliations are vital for several reasons:

• Error Prevention: Prevents errors and mistakes in the balance sheet.
• Fraud Detection: Helps in detecting and preventing fraud.
• Audit Preparation: Ensures smooth audits with minimal observations.
• Clearing Open Items: Compels the clearing of open items, keeping the books clean.
• Understanding Items: Provides insights into the nature and age of balance sheet items.

The BSAR Process The BSAR process typically follows a structured approach involving several key roles and steps:

1. Auto-Certification: Certain accounts with balances below a specific threshold can be auto-certified by the system, reducing manual work.
2. Manual Reconciliation Preparation: The Preparer arranges for manual reconciliation, categorizes open items, and ensures proper documentation.
3. Approval: The Approver manages items requiring action, maintains BSAR timelines, and ensures the overall representation of reconciliations.
4. Review: The Reviewer selects samples for quality assessment, evaluates the reconciliation quality, and provides feedback.

Key Roles in the BSAR Process

• Preparer: Responsible for arranging and preparing reconciliations.
• Approver: Manages and approves reconciliations.
• Reviewer: Conducts quality assessments and provides feedback.
• Expert: Provides specialized knowledge and guidance.

Control Systems and KPIs Effective BSAR processes are supported by robust control systems and Key Performance Indicators (KPIs) to measure and ensure the quality of reconciliations. These include standardized templates, narratives, and internal control measures to harmonize the reconciliation process across the organization.

Conclusion Balance Sheet Account Reconciliation is a fundamental process that enhances the accuracy and integrity of financial reporting. By following a structured approach and utilizing appropriate control systems, organizations can achieve high-quality reconciliations that support financial stability and compliance.