Balancing to the last cent?
Is this not fundamental to the idea of accounting? It’s about balancing the books and emanates from a brilliant system of double-entry bookkeeping that was devised thousands of years ago and has survived intact to this very day!
In the theory of accountancy, accuracy is non-negotiable. But for accountants is this valid?
Well if you are a bookkeeper, definitely. How can you ever move on if the TB is out by ten cents? How do you know that the difference is not a staggering R10,989,916.67 on the one side and R10,989,916.57 on the other?
But if you are a CA you need to be big enough to step through this obsession and focus on the bigger picture.
Now don’t kid yourself. There are still a lot of CA’s who will wallow in their perfectionist drama and search incessantly for the difference. I have a friend like this who still does his books with paper and pencil and will agonise over a 3c difference on his bank reconciliation. And he is non-negotiable. He will not leave it alone! He gets very upset with me when I laugh at his obsessive behaviour as I’m the accountant – how can I accept a misbalance of any kind.
Well I can, I do and to hell with the rest!
Business decisions are made on the bigger picture. CA’s who waste their time on petty differences are bookkeepers! For heavens sake, post the amount to a difference account and get on with it!
The thing is that, this thinking is contrary to the CA’s training. Auditing does not allow for the luxury of imbalances. It has to be done right and of course this is an appropriate expectation. You can audit around a materiality limit but you can only do so if everything balances to the last cent. Otherwise there is a moving target that could explode out into a disaster of immeasurable proportions.
Well that is patently untrue!
The real measure is based on risk and reward. In other words there is room to jump the gap? Three cents is unlikely to have a major impact whichever way you look at it. I can still hear my audit senior saying to me “But Clive, how do you know your unbalanced 3c is not represented by R10,989,769.08 on the one side as against . . . . . “.
So this is where this becomes important: when you re installing a new system and differences, no matter how small, keep coming up, it is an indication that there in something fundamentally wrong. It needs fixing as it could be indicative of a more serious problem.
But when assessing historical mismatches the situation is different and calls for a much more practical solution.
A client recently approached me with what he thought was a massive problem. The companies bank reconciliation was reflecting material differences – she had outstanding deposits of of close to R16m and outstanding cheques of a similar amount. Her problem was that the auditors were due to arrive within the week and she was in a panic!
So what we did is was set off the two amounts and posted the difference to an unallocated receipts account. Finished!
The auditors arrived, did their thing and left entirely satisfied.
A clean audit and a lot of time saved. From my part I assessed the risk, discussed it with the CEO, got him to counter-sign the decision and moved on.
To this day that decision has proved to have been solid.
We would have still being sitting trying to find the differences, the auditors would have qualified the audit report banks would have withdrawn the facilities.
Never ignore the bigger picture!