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Financial Statements Best Practices
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reject all items without purchase orders, as well as to enter all receipts in a com-
puter at the receiving dock. Whenever additional departments are involved, the
chances of completion drop, since there are more supervisors who can interfere
with it. Also, due to the programming needs, this is an expensive implementation
(unless there is already a packaged software solution on hand that contains the
appropriate features). Further, the purchasing department must be persuaded to
enter all purchase orders into the computer system in a timely manner. All of
these issues, particularly the involvement of multiple departments, makes this a
difficult and expensive best practice to implement, though it is also one of the
most rewarding ones to have in place.

Cost: Installation time:

12–7 AVOID THE BANK RECONCILIATION

The last item completed before issuing financial statements is usually the bank
reconciliation. A company’s bank takes a few days to compile bank statements
for all of its customers following the end of the month, then a few more days pass
while the statement travels through the mail. The typical company then receives it
on about the fifth business day of the month, and someone in the accounting
department must scramble to complete the bank reconciliation. Usually, there are
bank fees noted on the statement that must be recorded on a company’s books, as
well as any unrecorded checks (always manual ones that were never entered into
the computer system) that must be recorded. Because of the delay built into
receiving the statement and the time needed to complete the bank reconciliation,
many companies cannot reduce the time needed to complete their financial state-
ments to less than five or six days.
To reduce the time needed to produce financial statements, one must not
include the bank reconciliation in the month-end closing procedure. By doing so,
there is no need to wait for the bank statement to arrive, nor is there any last-
minute rush to complete the bank reconciliation.
However, there is a significant risk to consider, which can be greatly miti-
gated. The risk is that there is an expense located on the bank statement that, if
not recorded, will have a major impact on the level of reported profits in the
financial statements. For example, a large manual check representing a major
expense is listed on the bank statement as having been processed; this check
will eliminate all monthly profits when recorded in the general ledger. This
possibility is the main reason why many controllers insist on waiting for the
bank reconciliation to be completed before they will consider issuing financial
statements. Luckily, there are several steps one can take to reduce this risk. One
is to accrue banking fees. These are usually about the same amount each month
and so can be accrued and then reversed after the actual bank statement arrives.
Second, one can call the bank and advance the date on which the bank statement