The bank reconciliation process is one of the most important aspects of keeping transparency in business as it involves monitoring account movements. A company needs to match its bank transactions and end balance versus that of its banks to avoid missing out on bank errors. Moreover, bank reconciliation is an essential internal control practice that should be conducted at least once a month.
Have a look at our previous article on The Importance of Internal Control in Accounting
On the other hand, the bank reconciliation method can be a tedious job. But thanks to automation, the long and manual struggle is only just one click away! Keep reading to learn more.
The advantages of the bank reconciliation process
Companies can benefit from performing a bank reconciliation process. This includes meeting the following objectives:
- Identify unusual transactions caused by error or fraud;
- Reflect the actual cash available in the company’s bank accounts;
- Avoid insufficient funds and bounced checks;
- Monitor customer payments deposited in the bank;
- Keep track of check movements;
- Enable general bank account monitoring;
- Observe effective internal controls on bank accounts:
- All cash receipts deposited intact as soon as feasible (if possible, within the same day);
- Outstanding checks immediately delivered to respective payees; or
- Automated bank debits authorized and well accounted-for.
Who can prepare a bank reconciliation statement?
Bank reconciliation involves quickly identifying discrepancies in accounting which may eventually lead to serious problems. Therefore, it requires a competent and independent party to prepare a bank reconciliation statement. The referred independent parties may include:
- Those authorized and not involved in the disbursement process;
- Internal auditors who may be tasked to do the bank reconciliation from an unbiased point of view.
Basic steps in bank reconciliation
- First, acquire bank statements for a given month as well as the general ledger, bank transactions book, or any equivalent company records of transactions involving bank accounts for the same month.
- Then, compare the ending balance of cash in the company records against the ending balance in the bank statement (These do not always match due to reconciling items).
- Finally, identify the bank statement with each transaction from the company’s bank records (ledger, books, spreadsheet, accounting software, etc.). Moreover, each transaction must coincide or agree perfectly. If not, investigate the unmatched items.
Why you need Kwikdroid in the process?
Nowadays, many companies choose to adapt to technological advances such as Cloud-based solutions to further secure their financial transactions. For instance, Cloud-based and integrated platforms like Kwikdroid can help companies access information from anywhere, anytime, and any device. Since it is integrated with accounting software, Kiwkdroid makes the bank reconciliation process much easier and more flawless than ever.
Along with a multicurrency function and a variety of other platform packages to choose from, Kwikdroid connects you to your banks automatically and validates accounts with just a click of a button. It also filters every transaction depending on your needs. Regarding bank reconciliations, looking for reconciling items is now just a filter or a search button away. Meanwhile, the management can focus more on high-value tasks necessary for the company’s progress.
Check out our Kwikdroid page to see more features and request a demo.
How bank reconciliations affect the audit process
Auditors require a reconciliation document that could provide explanations for any variations.
- Banks may sometimes incorrectly add or deduct figures in the account which they mostly correct in time. However, that is not always the case. Auditors may ask for a bank reconciliation document to confirm any bank errors and ensure that the bank is taking action.
Particular details on reconciling items in bank reconciliation are important to identify red flags.
- Some companies can have reconciling items that will keep popping up every month. Furthermore, unmatched figures may include enormous amounts of cash deposit or withdrawals and unexplained transactions which could indicate corporate fraud.
Read our previous article on Corporate Fraud: Knowing the Signs and How to Fight It
Incorrect amounts do not necessarily mean errors, sometimes they are carefully concealed acts of fraud.
- Fraudulent transactions sometimes use error as an excuse. Through bank reconciliations, auditors can uncover unauthorized transactions, inconsistencies in the records, and unexplained figures. Thus, they can focus directly on which documents to investigate and verify whether the transaction is a mere error or fraudulent in nature.
Stolen cash may not always seem like a smaller version of true cash balance. Just because the cash balance is higher than the bank statement does not mean it is more correct.
- Some schemes include the direct manipulation of transaction inputs. Fraudsters can make the cash balance look larger to hide stolen cash. Spotting inconsistencies can allow auditors to examine the nature of the transaction, the person responsible, or the motive behind the fraud or error involved.
Without bank reconciliation, auditors may question a company management’s representation or assertion. Hence, it leads to additional audit procedures.
Audit procedures are time-consuming and chargeable to the client. When fraud is suspected, auditors will spend more time investigating and finding more evidence from related transactions.
Check out S.J. Grand’s case of successful discovery of Inventory Fraud in a Chinese Company
Conclusion
Bank reconciliation is an easy tool that provides numerous benefits to the company. It prevents or discovers falsified audit confirmations, cash intercepts, forgeries, and other fraudulent transactions. Hence, companies and their stakeholders can avoid future problems if inconsistencies are explored earlier on.
Contact Us
If you are interested in Kwikdroid, contact us or go to our Kwikdroid page to request a demo and see the prices and packages we offer. You can also check our tax and accountancy page to know more about our specialist services.
S.J. Grand also offers Cloud ERP services for your business if you are currently experiencing difficulty in managing your operations amid the COVID-19 pandemic. Check out our IT services page for more details.
