A much tougher legal demand on Finance means mistakes must be found before the auditor arrives, not after. 

The substantially tougher legal demands on all finance departments started with the Sarbanes-Oxley Act (SOX) in the United States (US). It states that companies must report most errors the auditor finds as ‘material misstatements’ and ‘material weaknesses’, unless they can prove their own controls and processes would have found the error.

This means that US-operating businesses can no longer rely on an auditor as a part of an internal control process for spotting mistakes – mistakes must be found before the auditor even arrives.

Recent changes to financial regulation in Europe and in the US, have also focused largely on financial auditing and business record checks, particularly for Small and Medium Enterprises (SMEs).

  • Auditors are now not only checking the accuracy of our financial reports, but also the account reporting process itself.

An example of this, played out on 1st November 2012, the United Kingdom’s tax office (HM Revenue & Customs – HMRC), will be using their new programme to identify SMEs who have inadequate checks and account reporting processes. The HMRC’s pilot programme, which ran for most of the 2011-12 tax year, found that 36% of businesses had some issue with their accounting processes, of which 10% were serious enough to warrant a follow-up visit. Similar controls are due to roll out in all EU countries – we must not allow any room for slip-ups!

Reconciliation: The final test of your process before the auditor arrives

In the face of these new regulations, reconciliation management processes are now fundamental, provided any mistakes are filtered and corrected before closing the books – making the pressure on month-end close processes even tougher. Hence, Account reconciliation is the final ‘check and balance’ test of the books, it allows businesses to catch and remedy any mistakes in the accounts. 

  • Which must take place before the auditor even arrives, now a derived demand.

However, many businesses, especially SMEs, struggle to find the time to reconcile their accounts before filing with the taxman – making the auditors’ new focus on internal controls all the more challenging.

  • Finding time may mean investing in more staff, new technologies and or a review of your reconciliation management processes.

The reconciliation can be automised

When it comes to reconciliation process management, financial directors and CFOs should investigate automating solutions beyond their accounting system. Separate Auto-reconciliation tools can match more of your accounts data instantly, a fraction of the time it takes a human; it makes fewer mistakes and can even make suggestions for fixing mismatched items, and gets you much more of the control that is legally mandatory (and an impressive audit trail of the reconciliation work).

The speed and accuracy afforded by auto-reconciliation software could be exactly the solution to the tighter book-close deadlines and the growing necessity for accuracy in mandatory financial reports.

Tell us about your reconciliation process

What solutions has your business implemented to deal with new regulations like SOX? Has it worked to allow you to close your books accurately and on-time? Tweet us your questions, or connect with us if you’re on Facebook or LinkedIn

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