5 minute read 26 Feb 2021
Female chief analyst delivers speech

How to QA your way to better account reconciliations

By EY Americas

Multidisciplinary professional services organization

5 minute read 26 Feb 2021

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A broad quality assurance process helps you gain visibility, resilience and a framework for continuous improvement.

In brief:

  • Many finance functions have new software solutions and processes in response to the pandemic. In this time of disruption, audit risks can easily be overlooked.
  • Quality assurance can surface these risks and highlight areas of improvement, although the process can present frustration if not handled thoughtfully.
  • EY teams offer seven steps for organizations to consider and show how new software that enables greater teaming and visibility also can ease the QA process.

At the start of the COVID-19 pandemic, many finance organizations relied heavily on their existing or newly implemented software solutions to better enable managing the finance function and closing the books in a remote environment. With teams spread out and operating virtually, processes were adapted and streamlined, in part to respond to the greater need for visibility and transparency.

Controllers and others in finance functions might be surprised to discover the extent to which they are not getting the full benefit of the finance technology solution they are relying on — especially if the software wasn’t optimized during implementation, training was rushed, or approval processes and ownership of tasks are no longer fit for purpose. And these challenges can manifest themselves in potentially costly and disruptive audits.

In this environment, with heavier reliance on enabling technologies and new ways of working, a quality assurance (QA) review of account reconciliations can seem ill-timed, adding to the stress and workload of staff who are already stretched to capacity and adapting to new processes and policies.

Yet when done properly, and with clarity in the finance function’s operations, QA evaluation is crucial to ensure reliability of the results and enable continuous improvement. It offers a means for measuring quality, and the function gets an early glimpse into how auditors would find/rate a reconciliation — like getting to take a really hard test with an open book. Here’s how to make such evaluations work to your organization’s advantage.

QA reviews in action

Balance sheet reconciliations are a fundamental control point for accounting. In a QA review, a sample of reconciliations are reviewed to gauge their quality against customizable goals — for example, policy compliance, proper utilization of technology and timely certification.

This can be used as a tool for management to improve the quality of reconciliations and understand risks within the reconciliation process. It can also be used as an accounting control — aligned with SOX, GAAP or IFRS. Generally, three groups are tasked with conducting these reviews:

  • Individuals who are knowledgeable about accounting controls and financial requirements
  • Experienced accountants who understand the process requirements for the reconciliation
  • Professionals who have a general understanding of the accounting policy and the importance of adherence to the policy

A QA review can uncover some gaps that may be small and easily addressed as well as others that may not be an issue on their own, but together can create concerns about the integrity and reliability of the results of the financial close. Maybe some reconciliations that had aged over 60 days didn’t have action plans, a signal that managers didn’t understand all the requirements. Perhaps support for an entry is readily available but just isn’t attached within the software solution.

A QA review can also indicate that teams need more training after a new system and processes were implemented. Like any process that undergoes scrutiny and is evaluated for gaps and risk, a QA review spotlights how to improve, leading to greater efficiencies, better reconciliations and more reliable results.

How to improve your reconciliations

To introduce or strengthen a QA process in your operations, consider these seven steps:

  1. If you’re just starting out, pick 10 of your highest-risk reconciliations and then have someone neutral evaluate them. Or, for a more robust approach, tackle more sampling of amounts and business units. You’re gauging whether your people are doing what they say they’re doing — trust, but verify.
  2. If you don’t have one yet, create an account reconciliation policy. The policy can cover any components that you prioritize. Is the reconciliation on time? Did the right person approve it? Do you want to set action points for aged items? This provides a framework for continuous improvement.
  3. Conduct your QA process consistently, on a set schedule. Most companies do it quarterly. It maps to SOX controls to overlap with work you would already be doing.
  4. Measure the policy components as well as leading practices. Leading practices, whether for your sector or other segmentation, can show how you performed against benchmarks and how you can position your organization to strive for more.
  5. Commit to having experienced accountants perform the reviews. Your goal is to get impartial results by trustworthy sources, not skewed for business reasons or twisted according to internal politics. Position the QA as a partnership, not a “gotcha.”
  6. Provide reporting to stakeholders and senior management on the quality of reconciliations. Transparency is crucial, both for preserving the integrity of the process and showing how the finance function can best demonstrate its value.
  7. Implement new processes, and repeat as necessary. Perhaps in the second quarter, you can pick 10 different areas to scrutinize, or refine your policy. And as you grow as an organization, you can focus on other areas that have become more important.

Do more with your software

Sometimes companies will implement software without fully understanding how it can be disruptive to their processes. This is no doubt the case many companies find themselves in as they scrambled for solutions in the fallout from the pandemic. Managers can end up signing off on reconciliations and assuming that they were in good shape, but only because they didn’t understand how to properly use the new tools.

The good news is that some of this software has its own evaluation tools. For instance, BlackLine — a financial close software solution — can be customized to align with your account reconciliation policy to measure your own specific goals. The administrator can put your policy requirements in the tool and tag points, then see it all together. Online training on how to use the program (including certification) is included, and links point to your organization’s specific policies and processes that are uploaded. Control features, including audit trails, are included, along with clear transaction flows and workstreams.

When paired with QA reviews, these solutions can be used to eliminate manual controls, some of the SOC testing and more. When you take a deep look at the actual reconciliations themselves, and the support of them, you may find more gaps than you expected. But it’s a big step toward continuously improving quality and complying with auditors’ requirements — driving reliability and confidence in the numbers as a result of more efficient teaming and increased transparency in the ongoing remote work environment.

Summary

Handled properly, quality assurance serves as a crucial mechanism for more reliable data, greater efficiencies and better reconciliations, and you may have an evaluation tool already installed that can help guide you.

About this article

By EY Americas

Multidisciplinary professional services organization