Finance and Accounts

(Record To Report)
Finance and accounts – Key Aspects

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Finance and Accounts
The four steps of the Record-to-Report process
Level 1 2.0 Entity Close and 4.0 Internal/External
1.0 Data Collection 3.0 Consolidation
Submission Reporting

Level 2 1.1 2.1

Reconcile all General
3.1 Obtain supporting 4.1
Close all incomplete tasks Ledger accounts documentation for
(Often multiple G/Ls and elimination and Business Unit
consolidating spreadsheets) consolidation entries Reporting

2.2 3.2
1.2 Review and approve the 4.2
Collect all feeds Close all open issues elimination and Run Financial
related to the close consolidation documents/ Statements
1.4 Consolidated
entries Reporting
Revenue
Accounts Receivables Reconcile Feeds
2.3 3.3
Receivable 4.3
Reconcile intercompany
Perform variance analysis accounts for accuracy Ensure reports centered on
Accounts Payable
Payables (Multiple manual systems often Key Performance Indicators
Purchasing demand a compensating manual
Procurement control)
2.4 4.4
Record all standard journal entries 3.4
Misc. Journal Entries General Ledger Conduct initial variance
Adjustments Reconcile key accounts and analysis and commentary
Post revenue
Perform agree on intercompany
Post AP accruals accruals (Shipped
but unbilled, bed allocations balances
Fixed Assets
debt, etc.) 4.5
Inventory All feeds
Payroll Analyze variances for
Post misc. Post receivable actual versus budget
provisions Post misc.
accruals, (tax,
1.3 (marketing/cost. reclasses
legal, audit) dev. funds, etc.) 4.6
Run end of day General
Ledger close Analyze variances for
Review all actual versus prior year
Post HR accruals
Post petty cash accruals and
(bonuses, payroll)
provisions
4.7
Complete business
specialist detailed financial
analysis

Source: Financial Statement Close Process Methodology, FSC02 – FSCP Scope, Components and Leading Practices, Pg 3., 2009; Process Design session conducted with John
Hatcher, Matt Pagac, Jay Buser, Janelle Gruneisen, Dec. 2009.

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Finance and Accounts
Know Your Trial Balance
A trial balance is an accounting report that lists the balances in each of an organization's general ledger accounts.

AccumBal Debit Credit Cum. Debit Cum. Credit Accumulated

GL Code GL name
Prev Period 1 - 7 1-7 Balance Balance balance
Building
100100 92.37 4.91 0.01 97.27 - 97.27
Factory
Advance To
220002 0.22 2.51 2.54 0.18 - 0.18
SAP T-code Employees
Generate TB in Extract Trial
ERP
S-ALR_8701231 Balance from SAP 230205 Claim Payable - - - - - -

Sale
300003 - 0.96 62.25 - -61.29 -61.29
Domestic
Con-Raw
400001 - 17.61 0.32 17.28 - 17.28
Material

General Ledger series indicates the nature of transactions that are being posted in the ledger

1 2 3 4

Assets Liabilities Revenue Expenses

(Fixed and Current) (Inc. GR/IR Clearing accounts) (Domestic and Export) (Direct and Indirect)

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Finance and Accounts
Know Your Trial Balance
Categorization of each leger under trial balance as per applicable internal audit cycles

Identification of applicable
Categorization
internal audit cycles based Internal
on the nature of ledger
Audit_Coverage

Identification of Exceptions to be identified

exceptions as per the ledger nature, Analysis of
transactions and balance ledgers_TB

1 2 3 4

Assets Liabilities Revenue Expenses

(-ve balance) (+ve balance) (-ve balance) (+ve balance)

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Finance and Accounts
GR/IR Clearing Accounts

Clearing accounts ensures highest accuracy functional support to controls implemented in core SCM and other processes

Goods received Invoice processing Payment processing

in Stores (MIGO) by Finance (MIRO) by Finance

Inventory account Dr GR/IR Clearing account Dr Vendor Account Dr

Accounting Entries
GR/IR Clearing account Cr Vendor Account Cr Bank Account Cr

Document Types WE RE BP

T – Codes: Report FBL3N FBL1N / FBL3N FBL1N

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Finance and Accounts
Provision and Prepaid

Accrual-basis accounting is a concept in which expenses are recorded when

incurred, not when amount is paid.
1. ACCRUALS /PROVISIONS:
- All expenses incurred to generate revenues must be recognized in the same period as the related revenues.
- A provision is an amount that you put in aside in your accounts to cover a future liability.
2. PREPAID: A type of asset that arises on a balance sheet as a result business making payments for goods and services to be
received in the near future
Services rendered but Invoice not received- Non-visibility of Invoice value
Services rendered but Invoice not received- Visibility of Invoice value
NATURE OF Invoice received but put on hold due to mismatch
ACCRUALS/PROVISIONS Activities planned & expected to be incurred by last week of month end
Expense incurred by Distributor as per Contract Term

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Finance and Accounts
Provision and Prepaid

INVOICES\SERVICES

INVOICE OF PAST INVOICE OF INVOICE OF FUTURE

PERIOD CURRENT PERIOD PERIOD

Received in Current
Received in Not Received in Month but Services not
Received in
Current Month Current Month rendered
Current Month

1) It is Current Month 1) Its not a Current Month Expenses

1) Its not a Current Month 1) It is Current Month Covered in
Expenses Expenses 2)Currently treat it as Advance money
Expenses Prepaid Expenses
2) Its to be adjusted 2) Book in the system as 2) Provision to be provided 3) Will be booked as expenses in the
against the provisions Expenses in the books of accounts month in which the service is received
4)No Provision/Adjustment required

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Finance and Accounts
Overview of Insurance costs
The below table shows the broad categories of insurable risks and corresponding insurance
policies available; along with mapping of policies recommended for consideration

Industrial All risk policy for damage due Money insurance policy
Machinery
Plant Assets to breakdown, fire, burglary, standard Boiler policy for cash in hand and in CWIP
breakdown policy
perils and terrorism transit

Package Insurance policy for laptop damage

Corporate Burglary
due to theft, breakdown, fire, burglary and
Money insurance policy for
CWIP
Fire
Assets Insurance cash in hand and in transit Insurance
terrorism

Inventory Inventory at plant Inventory at depot Inventory in transit Inventory at port: Sales turnover policy

Senior Mgmt. Overseas travel Employee liability insurance against Director’s and officers' liability Fidelity Key man
and Directors insurance any claims made by employees insurance insurance insurance

Loss of profit due to Loss of profit due to fire Credit risk for
Sales and profit Multi buyer exposure policy for credit risk
fire and breakdown and breakdown - Windmill domestic sales

Loss of
Cyber security
information

Liability Comprehensive General Pollution and Errors and

Public liability Product liability
Liability – Occurrence basis contamination liability omissions liability

Legend: Policy Policy Availed Policy

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Finance and Accounts
Testing approach (Key Areas)
Scope Area Risks Controls/Leading Practice Tests
All adjustments entries related to various rectifications Maker checker control exists for recording of month end Obtained the list of adjustment entries recorded
(if any), year-end adjustments were not reviewed by accounting entries during the audit period and verify the adequacy of its
the authorized personnel approval and recording
Period end accounting
entries
No periodic review of general ledger is carried out for Periodic review of access rights shall be carried out so as Obtain the access logs to verify its
identification of wrong/ double booking of voucher to ensure restriction of right to record month end entries comprehensiveness and relevance
to authorized personnel

No formal policies exists for estimation of provisions for Formal policy is laid down for calculation of provision for Obtain and review formal policies exists for
bad and doubtful debts doubtful debts. An illustrative instance is stated as calculation of provision for bad and doubtful debts
hereunder: and other expenses
Overdue > 90 Days — 20 %
Overdue > 180 days— 50%
Overdue > 1 year — 100 %
Provisioning Other debtors considered as doubtful and irrecoverable
No process exists for comparison of the adequacy of Process exists for periodic review of amount provisioned Verify the adequacy of the calculation of the provision
the provisioned amount against the actual expense versus the actual expenses incurred and verify the review mechanism
incurred for the specified period

No annual reporting calendar is specified mentioning Annual reporting calendar specifying the cut off dates for Understand the procedures for cut off transactions
the dates for periodic closure of book each period closure is prepared and approved from management and analyze its adequacy

Book closure
No book closure checklist exists specifying the closure Book closure checklist is duly completed and approved Verify the adequacy of the filled-up book closure
of all the activities for monthly closing for each period closure checklist

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Finance and Accounts
Testing approach (Key Areas)
Scope area Risks Controls/Leading Practice Tests
No formal documented process for opening of a new Formal documented process approved by Review whether any formal documented process
general ledger and sub ledger code management exists for any modification to Chart exists for opening of new GL and SL code
of Accounts

Access rights for modification of chart of accounts is Access rights for modification of Chart of Obtained the access rights matrix and ensure the
General ledger
available with unauthorized personnel Accounts is restricted to authorized personnel adequacy of the access rights for modification of
maintenance chart of accounts

Incorrect grouping of general ledger and sub ledger Review of Chart Of Accounts (COA) and Obtain the grouping of GL codes and verify its
code, duplicate and redundant ledger code grouping and frequent monitoring of COA adequacy and its flow in financial statements

Correct value of inventory not recorded in books of Reconciliations prepared between the inventory Check whether process in place to reconcile
Inventory accounts value as per General Ledger and the value inventory valuation as per inventory module and
accounting depicted in MM module Inventory Control account in GL.

Access rights to close/ open various module is Access rights for opening/ closing of various Verify the adequacy of the access rights for
available with unauthorized personnel modules in ERP is restricted to authorized opening/ closing of module in ERP
personnel
Following reconciliation are not carried out/ Periodic reconciliation are carried Conduct discussion with the management to
approved: understand the process of carrying out various
Book closure ► Sub ledger General ledger reconciliation in case reconciliation
of debtors and creditors
► Bank reconciliation
► Fixed assets reconciliation
► Inter unit reconciliation
► Cash reconciliation

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Finance and Accounts
Testing approach (Key Areas)
Scope Area Risks Controls/Leading Practice Tests
Procedures for determination of related party are Related party transaction are identified by legal department Obtain the financial statements and verify the
inadequate and submitted to Accounts Department. Accounts Department adequacy of the disclosure
identifies the transactions with the identified parties and
Preparation of standalone discloses it as a part of financial statements
financial statement
Access rights over financial is not restricted and in Financial statements are password protected and access Verify the adequacy of access rights over the
case of spreadsheet financials, spreadsheet rights is restricted to authorized personnel financials of the company and spreadsheet
controls like password protection, edit lock, controls over financials
formula protection etc. are not implemented

List of subsidiaries identified for the purpose of Accounts Department along with Legal Department shall Conduct discussion with the management to
consolidation are incomplete/ inaccurate identify the list of subsidiaries/ associates at the beginning of understand the procedures for periodic
each financial year identification of list of subsidiaries/ associate
companies to be considered for the purpose of
consolidation

Consolidation of financial Standard template is not used for consolidation of Approved standard template exists for preparation of Understand from management whether any
statement financial statements consolidated financial statements and notes to accounts standard template exists for preparation of
consolidated financial statement

Adjustment entries with respect to intercompany Adjustment and profit elimination entries intercompany Obtain the financial statements for sample
receivables/ payables/ elimination of profit element receivables/ payables, intercompany sales, income, interest, months and verify whether the adjustment
on inter company stock are not accurately dividend, profit element on inter company stock etc. are entries recorded are accurate and approved
recoded and approved adequately reviewed and approved

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 Open house / open points

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Thank you