ACCOUNT RECONCILIATION POLICY: SAMPLE 2

Prepared By:

Approved By:

Revision Date:

Effective Date:

The following sample outlines a set of policies and procedures for the account reconciliation process.

POLICY

This policy establishes the standards and procedures for ensuring that the company performs account
reconciliations in compliance with management’s objectives.

The purpose of this policy is to define the requirements for balance sheet reconciliations and to
communicate those requirements to those responsible for preparing the reconciliations.

It is a key responsibility of the accounting staff to monitor their assigned balance sheet accounts to ensure
that they accurately reflect current business conditions. This responsibility should be accomplished by
implementing and sustaining a formal process that ensures that all balance sheet accounts are reconciled
regularly and in a timely manner.

DEFINITION

In general, an account is considered reconciled if it is documented that the account balance accurately
reflects the underlying asset, liability or equity position of the company as of the reconciliation date.

Specifically, account reconciliation compares a general ledger account balance with the detail-level sub-
ledger which should support the general ledger account balance. For the purpose of this policy, the "sub-
ledger" may be a bank statement, an aging report, a spreadsheet, or some other appropriate underlying
documentation. Both the general ledger balance and the sub-ledger balance should be reconciled to an
"adjusted" balance (i.e., what the balance should be) since there may be errors in the general ledger, the
sub-ledger, or both. In addition, the reconciliation identifies the source of any differences between the
general ledger and sub-ledger’s balances and the reconciler's plan for eliminating them.

If a general account or primary account represents the consolidation of several secondary general ledger
accounts, then the reconciliation must be done at each secondary general ledger account. All secondary
general ledger balances must be summarized to the primary general ledger account and its balance.

Note: An analysis of the activity in the general ledger does not constitute reconciliation and is not an
appropriate supporting document in or by itself.

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 RESPONSIBILITY

Each balance sheet account is "owned" by an individual. Ownership responsibility is assigned to the
person who has the most knowledge and control of the account (unless internal control considerations
dictate otherwise) as well as the accounting skill to prepare the reconciliation.

On the last business day of each month, the following month’s reconciliation matrix will be prepared by
the company’s finance administrator. As reconciliations are completed, the company’s finance
administrator will update the status of each account on the matrix. The reconciliation matrix will be
included within the monthly reconciliation binder.

Reconciliation Matrix

The purpose of the month-end reconciliation matrix is to ensure that:

• An effective process is sustained
• Timely clearing of reconciling transactions is made
• Timely reconciliations are performed on a scheduled basis
• Adequate segregation of duties and responsibilities exists
• A strong centralized control, tracking and reporting process is maintained
• The reconciliation schedule is based on account activity risk
• Formalized reconciliation policy and procedures are adhered to
• Management’s oversight/commitment/authorization is assured
• "Employees responsible" are fully aware of their assignments and their responsibilities are completed
on time and conducted properly and accurately in conjunction with the financial closing internal
control structure

The company’s reconciliation matrix document is organized by a balance sheet schedule ID # legend, the
account reconciliation matrix and an instruction matrix.

Within the reconciliation matrix, the following key information is defined by schedule:
• Frequency (monthly or quarterly)
• Schedule number for referencing to its location in the month-end close notebook
• Due date and actual completion date
• Owner and approver
• A description of the schedule reconciliation
• A reference to the appropriate accounting pronouncement, if applicable

PROCEDURES

• Each account should be reconciled monthly or quarterly as identified in the matrix, unless an
exception is approved by the company’s accounting manager or the finance director.

• Accounts that have a zero general ledger balance or no journal entry activity will not require a
reconciliation schedule.

• The reconciliation schedule will be done in a standard format.

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 • Each assigned owner will ensure that adequate supporting documentation will be retained for their
respective assigned activity. All monthly schedules and supporting documentation must be reviewed
with the accounting manager or the finance director and the personnel will sign-off on all schedules
as evidence of review and approval. This documentation will be filed in the monthly workpapers
binder. For schedules that are prepared by the accounting manager, the finance director must review
and sign-off. If the VP finance director prepares schedules, then the accounting manager or the
sector controller will review and approve.

• The accounting manager or the finance director will monitor completion of reconciliations by
communication with assigned owners on regular basis.

• The finance administrator will update the matrix as reconciliations are submitted by the company’s
reconcilers. The reconciliation matrix will be the first schedule in the notebook followed by the final
ERP trial balance. As a final sign off, the VP finance director will review the completed notebook and
sign the reconciliation matrix.

• When a new general ledger account is created or becomes inactive, the accounting manager will be
responsible for updating the reconciliation matrix.

• Any changes to the month-end reconciliation process, such as changing the frequency from monthly
to quarterly or not completing a schedule, must be approved by the VP finance director in advance of
the change.

• The reconciliation should indicate the general ledger and the sub-ledger balances at the end of the
month and identify each item comprising any variance or difference, if any, between the actual
general ledger and sub-ledger balances. The reconciler will adjust what the general ledger and/or the
sub-ledger balance should have been (the "adjusted" figure). The number of reconciling items and
the absolute value of these reconciling items will be shown and described at the bottom of the
reconciliation.

• The reconciler will tick and tie with letters on the reconciliation schedule to the corresponding amount
in the supporting documentation when applicable or necessary.

• As a final check for completeness, the finance administrator will ensure that the total general ledger
balance on the account reconciliation schedules for that Section ID agrees with the company balance
sheet group and line item report. This validation will ensure that all required accounts have been
reconciled. The report will also be included in the front of the quarterly reconciliation binder.

• The reconciler should identify the corrective steps to clear each reconciling item (note the journal
entry #, etc.) or provide a commitment date when the item will be cleared. An account containing
such items is un-reconciled and the amount of the unidentified items will be identified as the "un-
reconciled amount" at the bottom of the reconciliation. Reconciling items should be cleared by the
quarter-end close of the item’s discovery. If appropriate delays are required to correct or clear the
reconciled item, a formal document must be completed explaining the rationale for the delay. This
document must be approved by the VP finance director and the sector controller.

• All reconciling items will be tracked by the finance administrator and reviewed by the VP finance
director on a timely basis to measure the quality of the company’s account reconciliations. The
finance administrator will summarize all outstanding reconciling items by the general ledger account
to ensure that journal entries are processed in the subsequent accounting period.

• Material reconciling items will be discussed at the monthly company P&L and balance sheet review
meetings and with the sector controller.

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 RECONCILIATION SCHEDULE DEFINITIONS

• Reconciliation Statements: General ledger accounts that have external activity performed against
them by a third party use this format. The third party provides all external activity detailed activities
and corresponding values. These activities are then compared to sub-ledger activity or register
activity. All cash accounts require a monthly reconciliation to the respective bank statement.

• Sub-Ledger Reconciliations: ERP sub-ledgers exist for accounts receivable, inventory (raw
material & finished goods only), fixed assets and accounts payable. This schedule compares the
respective sub-ledger balance to the corresponding general ledger or trial balance amount. Most
other accounts at the company will use this format or schedule as the sub-ledger does have
underlying documents to support the content in the general ledger account.

• Roll-Forward Schedules: GL accounts that have only internal activities or journal entries processed
against them use this schedule. Significant routine and non-routine GL accounts require roll-forward
schedules. A roll-forward schedule shows "rolling" activity by month with an opening GL balance, all
transaction descriptions with an ending GL balance. At various organizations, the roll-forward
schedule is generally used for inventory reserves, federal & state income taxes payable, accrued
wages payable, accrued corporate & sector liabilities and intercompany accounts.

AUDIT FREQUENCY CHECKLIST

The following checklist reflects those GL accounts that will require completion before and after the
company closes the GL. This checklist will be reassessed during the (Insert Month) (Insert Year) month-
end close using the (Insert Month) (Insert Year) trial balances to ascertain if the company can perform
quarterly reconciliations for the listed GL accounts below.

(Insert Example Checklist)

RECONCILIATION BINDER LEGEND: SCHEDULED ID #

(Insert Example)

RECONCILIATION MATRIX

(Insert Example Reconciliation Matrix)

FILE LOCATION

All reconciliations for the current fiscal year will be located and retained within the following folder on the
accounting network drive. These files should remain in this directory and should not be copied to your
local drive or any other network location.

(Insert Network Location)

Included within this folder are subfolders that are created by the finance administrator. These subfolders
are titled by the name of the company reconciler. In each reconciler’s folder will be an Excel file for each
of the reconciler’s accounts. Each Excel file will contain a tab and a reconciliation schedule for each
month of the current fiscal year.

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 SIGN-OFFS & BINDER FORMAT

• One binder will be created on a monthly basis. Included in the front of the binder, the reconciliation
matrix and the trial balance will be filed in the front of the binder’s schedule ID sections. The following
is included on all account reconciliations.

Prepared by : ________________ ___ / ___ / ___

Reviewed by : _______________ ___ / ___ / ___

IST Accounting Manager or
Finance Director

As account reconciliations are completed, the total GL balance on the account reconciliations for that
section should agree with the company balance sheet group and line item report that will be included
in the front of the asset binder. Each person is responsible for ensuring that any entries posted agree
with the final balances when the month is closed.

• As reconciling items are noted during the account reconciliation process that requires booking a
journal entry, they should be documented by completing the following information, which is reflected
on all account reconciliations.

Correcting/adjusting journal entry required? Yes No

All corresponding documentation is attached? Yes No
If NO, documentation is filed: (specify)

Each correcting journal entry booked should be attached to the corresponding reconciliation. If a non-
quarter end month has been closed, the entry may be posted in the subsequent month. However, a
copy should also be retained with the reconciliation. For months concluding a given quarter end and
prior to the close of the month, all journal entries not booked in the proper quarter should be provided
to the accounting manager.

Each account reconciliation statement should contain the appropriate documentation to support the
ending balances in the general ledger account and sub-ledger. For sub-ledger detail which is greater
than X pages and is derived directly from the system, including only the last page with the total is
sufficient (e.g., accounts receivable, inventories, fixed assets and accounts payable sub-ledger
detail). The support should provide the reviewer with sufficient data to comprehend the information
and data included in the account. For example, descriptions should include the date of an item
capitalized to the account and a thorough description of the transaction. Solely providing the journal
entry # as detail for a reconciling item is not considered sufficient support.

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