Account Reconciliations requirements 2765

  • Our company just hired a new controller who had never had any public experiance. After her first close, she determined that we (the staff) spent a very large amount of time on account recs. We have over 300 g/l accounts and it was taking our entire team of 9 people four days to complete the recs. She is trying to streamline the rec process, but some of the things she’s trying to change would, in my opinion, not be SOX compliant. Such as:
    Using electronic copies with electronic signatures
    Breaking up the recs due before close versus after close
    Limiting the support needed - i.e. copies of journal entries
    Standard rec includes: cover sheet with summary, detailed sheet by period, and support pages. She wants to eliminate the detailed sheet.
    Would these items pass SOX?
    Thanks in advance.

  • SOX only concerned controls to mitigate at least reasonably probable risks of misstatements that are MATERIAL to the CONSOLIDATED financial statements.
    The first question you need to ask yourself is whether the balance on the account at quarter end or the flows throug the account are material to the annual consolidated financial statements. If not the account should be out of scope anyhow. The next question is whether the risk of erroneous or fraudulent misstatements on this account is at least reasonably probable. If not, again we are out of scope. Don’t waste valuable time for overly buerocratic controls.
    What do you mean with an account reconciliation?
    Who is reconciling entries on the account with what other sources of information and what purpose is the reconciliation trying to achieve?
    Are there other controls to prevent or to timely detect misstatements on this account? E.g. hiring qualified staff, training staff, only reviewing the most complex error prone entries or only reviewing a random sample of entries on the account, etc.
    The effort spent on the control should be balanced with the risk of misstatement and the magnitude of the misstatement (i.e. materiality).
    So the bottom line is, you should discuss magnitude and risk and the effort for various alternative controls and come up with something that is reasonable for both you and your boss.

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