Reconciliations are considered an important control activity. If they are not performed, the probability that an auditor will find errors will increase, which could trigger a judgment that a business has a material control weakness.
Advantages of a Reconciliation
A reconciliation can uncover bookkeeping errors and possibly fraudulent transactions. An outcome of this examination is that adjusting entries are made to the accounting records, to bring them into line with the supporting evidence. This tends to result in fewer audit adjustments at the end of the year, since most issues have already been found and corrected by the accounting staff.
Disadvantages of a Reconciliation
When account reconciliations are incorporated into the month-end closing process, this can delay the completion of the close. Controllers can mitigate this issue by mandating that only accounts with large ending balances be reconciled at the end of each month, thereby reducing the workload while still spotting most account errors.
