Importance of GL Reconciliations
It is a universally accepted accounting principle that reconciliations are a very important financial control discipline, used to ensure the integrity of balances reflected in general ledger accounts and also to ensure that they are summarised correctly in the financial statements.
It is also a reality that corporate finance often neglect to either regularly maintain their reconciliation discipline or to properly interrogate and act on valuable information provided by it. This negligence creates financial risk which increases exponentially with the size of a corporation.
In Search of Balance Sheet Integrity
Users of financial statements rely on financial information that is reflected primarily in balance sheets and income statements.
There are different types of users of this information who require the “comfort” of financial integrity of the figures presented. These users include inter alia:
- Management
- Auditors (external & internal)
- Customers
- Investors
- Lenders
While there are some international products that address balance sheet integrity, these systems are Dollar based and have become unaffordable in the context of COVID-19 and its affects on the South African economy.
The locally developed GreenLine GL Reconciliation platform, focusses primarily on providing this comfort to Management and Auditors through its reconciliation processing software and storage facility.
More about the GL Reconciliation Process
Broadly speaking reconciliation can be considered as comprising two processes, outlined as follows.
- In the first process general ledger account balances that constitute amounts disclosed in the balance sheet are analysed and detailed. All corporates that require audited financial statements are required to comply with International Financial Reporting Standards (IFRS). This first process or balance sheet account reconciliation facilitates IFRS compliance. Obviously, in addition to IFRS disclosure there is the value to management of the information itself.
- The second process, general ledger reconciliations, takes the first process a step further. It analyses and details the transactions that make up each of the general ledger account constituents of a balance sheet amount.
Backup documentation document is identified and referenced to the reconciliations.
History and bitter experience have proved that the value of reconciliations is inestimable to an organisation. However, for the reconciliation process to succeed there are a few non-negotiable prerequisites:
- Reconciliations have to be prepared, reviewed and acted on regularly, without exception. Delay in the finalisation of reconciliations must also be eliminated as their value diminishes with time.
- The process must define those responsible for preparation, checking and review. It must also provide the facility to record evidence that responsibilities in the process have been fulfilled.
- The process must have the facility to pinpoint accountability for irregularities.
- Storage and retrieval. Safe and accessible storage of reconciliations and related backup documentation that evidences the financial integrity of financial statements must be available for scrutiny at any time.
Systems like GreenLine provide an integrated process that is designed to prevent the exclusion of any of the above prerequisites.
It does go without saying that users of financial statements want the “Truth”.
GL Reconciliations go a long way to help provide it.