Enabling the Automation of Account Reconciliation and Accelerating the Financial Close Process

What is Account Reconciliation?

Account reconciliation is an important process that ensures financial information in an organization’s records is accurate and complete by verifying and comparing it. This process is critical for maintaining financial records’ integrity and identifying any discrepancies that require attention. 

Initially, all relevant financial records, including bank statements, invoices, receipts, and other financial documents, are collected and compared with the organization’s internal records, such as general ledger accounts, to identify any discrepancies. The reconciliation process involves reviewing and verifying transactions, comparing balances, and identifying errors or omissions.

Any discrepancies found must be investigated and resolved. This process is usually performed regularly, such as monthly or quarterly, to ensure that financial records are up-to-date and accurate, and to identify potential fraud, errors, or other issues that could impact an organization’s financial health. Account reconciliation also helps organizations identify areas for improving their financial management practices by identifying areas where they are overspending or under-collecting revenue.

This helps them make informed decisions about how to improve their financial performance. Overall, account reconciliation is an essential process for any organization seeking to maintain accurate financial records and make informed decisions about its financial health by investing time and resources into ensuring its financial records are accurate and up-to-date, positioning them for long-term financial success.

What is the Financial Close Process?

The financial close process is an essential set of activities that an organization carries out at the end of a financial period to finalize its accounting cycle. It involves several crucial steps that ensure the accuracy and completeness of financial statements. Initially, the process involves collecting all relevant financial data, including invoices, receipts, bank statements, and other relevant documents. These records are then carefully reviewed and reconciled to ensure the accuracy of all transactions. The process aims to identify and correct any errors or discrepancies in the records before finalizing the financial statements.

The financial close process also includes adjusting entries, where account balances are adjusted to reflect any changes in estimates, accruals, or prepayments. Once all adjustments are made, the financial statements are prepared, including the balance sheet, income statement, and cash flow statement.

The next step is to create financial statements, which include the balance sheet, income statement, and statement of cash flows. These statements offer a summary of the organization’s financial position, performance, and cash flow for the period.

After preparing the financial statements, they are subjected to an external audit to ensure compliance with accounting standards and regulations. Any discrepancies or errors discovered during the audit are corrected before finalizing the financial statements.

Finally, the financial statements are approved by management and the board of directors before being released to stakeholders, such as investors, lenders, and regulators.

The financial close process is vital in ensuring that the organization’s financial information is precise and complete. Additionally, the process provides stakeholders with dependable information regarding the organization’s financial performance, making it crucial for maintaining the organization’s reputation and credibility.

Account Reconciliation, Financial Close process and ERP

Automation of account reconciliation and accelerating the financial close process with Enterprise Resource Planning (ERP) is becoming increasingly popular among organizations as it offers several benefits. Below are ten key points to consider when implementing such a system.

• Improved Accuracy: With automation, the system can automatically match transactions and flag any discrepancies, minimizing the risk of manual errors in reconciliations.

• Reduced Costs: Automating the reconciliation process can reduce the costs associated with manual labour and error resolution, ultimately increasing the overall efficiency of the organization.

• Faster Closing Cycles: Automating the reconciliation process can accelerate the financial close process, reducing the time required for preparing financial statements and the overall close cycle.

• Streamlined Reconciliation: Automating the reconciliation process can significantly reduce the time required to reconcile accounts. This can be achieved by integrating ERP with bank statements, credit card transactions, and other financial data sources, thus minimizing the need for manual data entry and reducing errors.

• Improved Auditability: Automated account reconciliation will provide the top management with a comprehensive audit trail. This will make it easy for the management to identify and investigate discrepancies, and also ensure transparency and accountability.

• Scalability: ERP systems are highly scalable, meaning they can accommodate growth and support the organization’s changing needs.

• Increased Efficiency: An increase in automation with ERP allows organizations to streamline the account reconciliation process. This will enable staff to focus on higher value-added tasks.  Not only this the both time and money of the organisation will be spent less as the employee will focus on tasks such as data analysis and decision-making.

• Enhanced Visibility: With ERP, financial data is centralized and readily accessible, providing real-time visibility into financial performance, and enabling informed decision-making.

• Mitigated Risk: Automated account reconciliation can flag suspicious transactions and alert management, reducing the risk of fraudulent transactions.
• Better Compliance: Automated reconciliation can improve compliance with regulatory requirements, such as Sarbanes-Oxley, by providing a comprehensive audit trail.

In conclusion, automation of account reconciliation and accelerating the financial close process with ERP software can provide several benefits for organizations, including improved accuracy, efficiency, and compliance, reduced costs and risks, and enhanced decision-making capabilities. By implementing an automated system, organizations can streamline their financial operations, gain real-time visibility into financial performance, and focus on higher value-added tasks. Ultimately, this can lead to increased profitability and success in the long run.