Internal audit—a necessary evil or creator of added value?
Hopefully, you chose the latter, but with tight deadlines, PBC demands, and time-consuming manual processes, internal audit can sometimes feel like extraneous paperwork you’re scrambling to complete during the close.
In a legacy environment, accountants are often racing against the clock to complete month-end in a timely and accurate manner. As a result, they don’t have time to analyze their account reconciliations and other processes. That’s why collaboration with your internal auditors is critical. The stronger your relationship, the more auditors will understand your feedback and offer greater insights on improvement.
Finance and Accounting should be looking to their internal auditors as advisors, advocates, and partners of the business—monitoring controls and strengthening governance. But consider this: how can we get ahead of our auditors and be a best-in-class accounting organization?
Quality Account Reconciliations & Reviews Are Crucial
First, Finance and Accounting must build solid control processes. As a best practice, each balance sheet account should be assigned a high, medium, or low-risk rating according to your corporate policy. The control frequency should then be aligned to risk ratings to ensure balanced workloads for all accountants in your organization.
Next, assign a reviewer independent of the actual processes. Organizations will often use cross-functional account managers who can independently review others’ work.
Then, identify a standard review checklist and assign a point system by risk. For example, 20 points for high-risk accounts, 10 for medium, and five for low. Total scores can then drive your action items and KPIs.
During the review process, it’s also helpful to ask, can a person with adequate knowledge of accounting follow the reconciliation, support, and commentary, and validate the balance? To help answer this question, here are five core control objectives that should be considered during review:
- Existence. The activity recorded is appropriate for the time period reported.
- Completeness. The activity reported is comprehensive and complete for the reporting period and account.
- Valuation or allocation. The values assigned to the transactional details for the account are properly allocated, assigned, and distributed, and required adjustments were processed timely.
- Timeliness. The account reconciliation was prepared and approved timely, based on policy requirements.
- Presentation and disclosure. The activities and account balances are appropriately classified, reported, and disclosed.
When evaluations are completed, the best practice is to run a summary report to analyze accounts reviewed and associated commentary. Based on the total risk score, you can create a follow-up plan for recommended actions.
These results should be shared with your internal audit department, whom you can collaborate with to share thoughts and feedback and add increased integrity to your reconciliation processes.
Quality reconciliations and reviews upfront lead to streamlined processes, strengthened controls, and ultimately greater synergies with internal audit to improve KPIs and performance.
Join this webinar on Tuesday, November 19 to learn more about how to gain efficiencies and simplify your audits.