What is Account Reconciliation?

What is Account Reconciliation?

Authors: Lori Wihlborg and Mo Kandous

Account reconciliation is a vital process in financial management that involves comparing two sets of records to ensure their accuracy and consistency. It typically involves matching the transactions recorded in an organization’s internal financial system, such as a general ledger, with external sources of data, such as bank statements or supplier invoices.


The purpose of a reconciliation is to identify and rectify any discrepancies or errors between the two sets of records. By reconciling accounts, companies can ensure that their financial statements reflect the true and accurate financial position of the organization.


Reconciliation compliance refers to adhering to regulatory requirements and best practices while performing the reconciliation process. Various accounting standards and regulations, such as Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), may stipulate specific guidelines for conducting reconciliations.


Companies must comply with reconciliation requirements for several reasons:


  1. Accuracy and Integrity: Reconciling accounts helps maintain the accuracy and integrity of financial information. It ensures that the reported balances are reliable, enabling better decision-making.


  1. Fraud Detection: Reconciliations help uncover discrepancies that could indicate fraud or financial irregularities. By comparing different sets of records, suspicious transactions or unauthorized activities can be identified and investigated promptly.


  1. Regulatory Compliance: Many regulatory bodies and government agencies require companies to reconcile their accounts regularly. Non-compliance can result in penalties, fines, or legal consequences.


  1. Internal Controls: Reconciliations are an essential part of internal control systems within organizations. They serve as a checks-and-balances mechanism to detect errors, prevent misappropriation of funds, and maintain financial discipline.


  1. Audit Preparedness: Reconciliations provide a reliable audit trail, making the financial audit process smoother. Having accurate and up-to-date reconciliations helps demonstrate compliance and supports the reliability of financial statements during audits.


To facilitate efficient and accurate reconciliation processes, companies often leverage specialized software or tools. These tools offer features such as automated data matching, exception handling, workflow management, and reporting capabilities. These robust functionalities streamline the reconciliation process, reduce manual efforts, and improve overall efficiency.


In summary, account reconciliation is a critical process for validating the accuracy of financial accounts. Compliance with reconciliation requirements ensures regulatory adherence, mitigates fraud risks, and maintains the integrity of financial information.

The types of validations that are often done include: 

  • Cash: Compare General Ledger (GL)/Bank balance 
  • AP: Compare GL to Subledger 
  • AR: Compare GL to Subledger and analyze aging of receivables 
  • Fixed Assets: Compare GL to Subledger and perform a rollforward 
  • Prepaids / Accruals / Provisions / Reserves: Document net composition and justify quality 


Reconciliation Compliance helps manage account reconciliation processes, including balance sheet reconciliations, consolidation system reconciliations, and other reconciliation processes in effect. 


You can: 

  • Manage preparation and review responsibility assignments 
  • Configure reconciliation formats tailored to each account type 
  • Notify users of due dates for their assigned reconciliations 
  • Control preparation and review workflow 
  • Provide visibility into the reconciliation status and possible risk conditions

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