Importance of Account
Reconciliations in Oracle E-Business Suite modules
The finance
department in most organizations is coming under increasing pressure to transform
and streamline the financial close and reporting function while continuing to
maintain the integrity of the financial statements and close process. A key
part of this close process includes the completion of detailed account
reconciliations, which can be a major bottleneck in the close process.
The necessity
for understanding and certifying an account balance and its transactions is
prompted by regulatory and audit control requirements. In addition to the statutory pressure for
account reconciliations, the current economic situation makes it imperative for
Finance executives to understand the details and transactions behind every
account. They need to be able to easily identify fraudulent, improper and
excessively aged transactions.
In most
organizations, the account reconciliation process is a very time consuming and
manual process. A robust and integrated account reconciliation software application
will allow Finance to more effectively manage their business.
Account
Reconciliations: An Essential Part of the Financial Close
Account Reconciliations fulfill an important role in ensuring
financial statements contain accurate information. Balances that were accurate
one month may require adjustment the next, due to changes in circumstances
affecting the company. For example, a company in litigation must evaluate contingent
liability accruals to make sure they reflect a reasonable estimate of the
expected loss. In a sales transaction, cash may be received before the revenue
can be recognized, and the entry to recognize revenue must be timed to match
satisfaction of revenue recognition requirements. For reasons like these,
companies must perform an analysis of account balances on a periodic basis and consider
whether adjustments are required. This process, if not performed properly, can
result in the accumulation of significant errors as time goes on.
Some
of the key challenges in account reconciliations include ensuring all accounts
are being reconciled, that the reconciliation itself is complete and proper,
and that the company is maintaining the proper evidence that this control
activity was performed. Oracle’s experience with customers reveals that this
tedious process is typically performed in Microsoft Excel, where Finance staff manually
enter the balances to be reconciled and the analysis justifying the account
balances. Managers usually send emails or make phone calls to track progress
and follow up on delinquencies. Due to the challenges in tracking account
reconciliations, companies typically prepare and review most reconciliations on
the same schedule and are often not factoring in risk when determining
frequency and due dates.
Common
failure points include:
• Missing or lost reconciliations
• Un-reconciled accounts
• Improper use of roll-forwards
• Reconciliation of the wrong balance (balance
changed after certification)
• Insufficient justification or documentation
When
these failures occur, audit findings can result in a significant deficiency or
a material weakness in internal control, and costs can reach the hundreds of
thousands, or even millions of dollars.
General Ledger Balance Sheet Reconciliations
These reconciliations typically cover all active balance sheet
accounts (any account open for posting), including accounts with a zero
balance. The justification for including zero balance accounts is that the existence
of a zero balance doesn’t mean the balance is proper. It could be that the
balance should have been something other than zero.
The objective of General Ledger Reconciliations is to ensure that
the balances used for financial reporting are accurate. They are typically
performed monthly, though some low risk / low volume accounts may be reconciled
less frequently, such as quarterly, or in the case of equity, annually. The
method used for reconciliation depends on the nature of the account. If the
account is supported by a subledger, then the reconciliation typically requires
a comparison of the general ledger balance to the subledger balance, followed
by an analysis of the subledger balance to support reasonableness. For example,
accounts receivable reconciliations will often contain an aging of the
receivables balance, to ensure the balance contains no excessively aged
receivables that should be written off. Accounts not supported by a subledger
require an analysis of the account balance. Specifically, the reconciler must
be able to document what the balance should be, based on their understanding of
the business and the economic conditions supporting postings to the account.
For all types of accounts, if errors are detected in the account balance, then
reconciling items must be documented explaining the difference and the action
to be taken to resolve the discrepancy.
Extracted from Oracle Hiperion
white paper-Reducing the pain of Account Reconciliations
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What is srvctl? it is the Server Control Utility, we use SRVCTL to start and stop the database and instances, manage configuration information, and to add, move or remove instances and services.
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