Internal Audits of Financial Statements

Internal Audits of Financial Statements

With today’s technology once the bills are entered, the checks printed, the invoices posted and cash receipts are recorded, computer programs print out financial statements with a click of the mouse. However, you can bring much more to your company than data entry. A careful review of the books and examination of meaningful accounts will assure that not only are your financial records in balance, but also meet accounting standards.

Bank reconciliation is one of the most shared examples of this approach. Your bank reconciliation should agree with your computer records and your manual checkbook. All cash accounts should be reconciled monthly including your petty cash fund.

The next two accounts to be reconciled are Accounts Receivable and Accounts Payable. The ending balances in these accounts should correspond to the balances shown on your aging reports.

Accounts that often get overlooked when preparing an internal financial statement are the observe Receivables or observe Payables. Do the general balances match the statements provided by the bank?

If not, it is easier to locate the problem within the month the discrepancy happened instead of waiting for year end. And of course if there is a variance, either your books are wrong or the bank has made a mistake. Either way now is the time to correct the problem.

Payroll reconciliation will ensure that your payroll and payroll taxes are posted correctly. Ascertain that your payroll tax liability accounts are showing the correct balance (the amounts withheld from employee paychecks plus the companies proportion of payroll taxes that keep undeposited at the end of the month). Also check the amounts posted to your labor accounts and payroll tax expense accounts. Do you break out your labor costs to departments? Do you break out vacation, sick, holiday, etc to separate general ledger accounts? Reconcile your payroll records to those accounts using your outside payroll service reports or your internal reports should your payroll be done in house.

And lastly, take a look for reasonableness. Does it make sense that you spent $10,000 on office supplies in one month? Depending on the size of your company, that might make perfect sense, but then again maybe there is a posting error. It is better to take a few minutes to review the financial statements before you hand them to your boss, then to be questioned after the fact.

Taking these additional steps will build trust in your ability to produce accurate financial statements which is after all, what we all strive for.

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