Balance sheet reconciliations are among the most familiar controls in accounting. Every month the bank, the receivables and payables control accounts, the accruals and the suspense account are agreed to supporting evidence. The spreadsheet is saved, the file is ticked off, the close moves on. Yet errors are regularly found sitting in accounts that were reconciled every month for a year.
The reason is that preparing a reconciliation is not, on its own, a control. It becomes one when someone independent reviews it and acts on what they find.
What a reconciliation can hide
A reconciliation agrees a ledger balance to another source and lists the differences. The risk lives in those differences. A reconciling item described as "timing difference" can be a genuine item that will clear next month, or it can be an error that has been rolled forward, month after month, with the same label. The reconciliation balances either way.
Common patterns include:
- Aged reconciling items that have appeared on every reconciliation for several periods without resolution.
- Round-number items or items with vague descriptions, which may be estimates or plugs rather than identified differences.
- Supporting evidence that is not independent — a schedule prepared by the same person from the same ledger, rather than a bank statement, a sub-ledger or a third-party confirmation.
- Reconciliations prepared after the review deadline, or signed off without the supporting documents attached.
What the reviewer should check
A meaningful review is not a signature on a completed spreadsheet. It asks a short list of specific questions:
- Does the balance in the reconciliation agree to the trial balance at the reporting date?
- Is the supporting balance from an independent source, and is the evidence attached?
- Is every reconciling item identified, explained and dated?
- Are any items older than the agreed threshold, and if so, what is the plan and who owns it?
- Is anything being carried forward that should have been written off, corrected or escalated?
The reviewer should be someone other than the preparer, with enough knowledge of the account to recognise an implausible explanation, and the authority to require that it be resolved.
Set thresholds for ageing and escalation
Reconciling items should not be allowed to age indefinitely. A simple policy — items older than one period are explained in detail, items older than three periods are escalated to the finance lead — prevents the slow accumulation of unresolved differences that eventually surfaces as a write-off nobody can explain.
Keep the evidence
The value of the review lies partly in the record it leaves. A reconciliation file that shows who prepared it, who reviewed it, when, and what questions were raised gives an auditor, a new finance manager or the reviewer's own successor the ability to see what the control actually did. Without that record, the organisation can say that reconciliations were done, but not that they worked.