How to Identify and Fix Reconciling Items

Reconciling items are unnoticed errors during reconciliation that can go undetected due to various reasons. There is a chance that the person who reviewed the records missed them, or the initial data entered was incorrect.

Whether due to timing differences, human error, or missed transactions, these items must be identified and resolved to maintain accurate financial records and pass audits. Automated reconciliation tools can significantly reduce the time spent identifying these discrepancies and minimize human error.

Below, we guide you through the reconciling audit step by step so that you can discover and resolve any discrepancies in your records.

What Is a Reconciling Item?

A reconciling item is something that causes a difference between two sets of financial records. For example, if the bank charges you a fee but you haven’t recorded it in your books, that’s a reconciling item.
Let’s look at an example:

At the end of the month, you check your ledger and see a bank balance of €50,000. However, the bank statement shows only €40,600 or €400 that you have unaccounted for. So, you review your records again and find that the difference is due to a pending card payment.

Here is what happened: On the last day of the month, a customer made a €400 card payment. The money hasn’t appeared in the bank account yet because the payment processor hasn’t completed the transfer. What you should do is deduct the pending card payment amount from the ledger, ending up with an updated balance of €40,600 instead of €50,000.

Why Are Reconciling Items Important?

• Comply with IFRS (International Financial Reporting Standards) and other relevant financial regulations, which require your bank records and books to match.
• Identify unauthorised or suspicious transactions and prevent money losses
• Create an audit trail you can show to auditors when a cheque hasn’t been cleared and has been placed under reconciling items.
• Ensure your revenue and expenses are accurate for tax purposes

What Happens if You Don’t Do a Reconciliation?

Irregular reconciliation can lead to serious consequences:

• Failed financial audit – Your records should always be sorted out so that you are prepared for a financial audit, even at unexpected times. If you fail the audit due to a missed reconciliation, you may face legal issues and also cause business problems like your investors losing trust in you.
• Fines or legal action – Regulators or tax authorities can impose penalties for non-compliance or misrepresentation of finances, even if you made an accidental mistake in your reconciliation. These penalties can range from monetary fines to legal action.

The Most Common Reconciling Items

Here are some of the most common reconciling items you may discover during your audit:

• Outstanding cheques – Cheques that haven't yet cleared the bank
• Bank fees – Service charges you will find on bank statements 
• Outstanding deposits –Payments recorded in the company ledger that haven't appeared on the bank statement yet
• Posting errors – Errors in recording amounts, such as swapping digits (e.g., 78 instead of 87).

How Often Should You Go Over Reconciling Items?

How often you reconcile mainly depends on your bank activity. Enterprises with daily bank activity should always have their reconciling statement up to date or day by day. However, the standard for most businesses is monthly bank reconciling item reviews as part of their regular accounting cycle. Bank statements are usually issued monthly, so this is a natural time to compare records.

Best Practices for Reconciling Items

Reconciling items can be challenging, but there are ways to make this task simpler and faster. Follow our practices for a smooth reconciliation:

• Create a routine schedule for reconciliations (e.g., end of the week or month) and stick to it. This way, you’ll never have to question whether your data is updated because you’ll always have the last date you updated it. It’ll also make it easier for you to get back on track during the next audit.
• Keep detailed records of unresolved reconciling items for follow-up during the next audit. This practice ensures that no discrepancy goes unnoticed and helps in maintaining a clean financial record.
• Use automated reconciliation tools to standardise the reconciliation process. A financial solution like Aico can help you streamline the audit process so you don’t have to do it by hand.

Automate Reconciling Items with Aico

Regardless of your approach, manually auditing reconciling items will always be time-consuming and prone to errors. However, there is a way to automate this process and never do a physical audit again.

Aico automates the reconciliation and auditing process, helping you:

• Maintain data integrity
• Standardise tedious processes
• Automate manual tasks
• Link postings to keep accurate records and much more.

We minimise human errors and speed up your financial close cycles so that you can focus on what matters most – your clientele. Start optimising your reconciliation process today with Aico and keep your financial records accurate, compliant and audit-ready.

Frequently Asked Questions About Reconciling Items

What is the difference between reconciling items and reconciliation?

Reconciling items are the specific discrepancies found during reconciliation, while reconciliation is the overall process of comparing financial records.

How long should you keep reconciling item records?

Keep records for at least 7 years to comply with most tax and audit requirements.

Can reconciling items be automated?

Yes, modern financial close software like Aico can automatically identify and flag reconciling items.

What is the most common reconciling item?

Outstanding checks and deposits in transit are the most frequent reconciling items in bank reconciliations.