Meaning
Accounting audits compare different sets of financial records to ensure that the transactions recorded in each ledger match perfectly. Through regular ledger reconciliation, companies identify and resolve discrepancies between their internal accounts receivable registers and the records held by their financing banks. This process is essential for asset based lending and factoring arrangements where loan values are tied directly to outstanding invoices.
It prevents errors in calculating the available credit line.
Discrepancy Identification
Differences arise from timing delays, payment processing fees, and customer disputes. The ledger reconciliation process allows the finance team to track down missing payments and apply them to the correct accounts. This ensures that the borrowing base matches the underlying collateral.
Internal Audit
Auditors perform these checks monthly to detect fraud or accounting errors before they become material issues. If discrepancies are left unresolved, they can lead to an overstatement of the company’s assets. This overstatement could result in a breach of the credit agreement terms.
Process Execution
Staff compare the subledger of accounts receivable against the general ledger and the bank statements. Any unmatched invoices are investigated and adjusted through journal entries. This ensures the integrity of the financial statements used by investors and lenders.
