Blog Post
How to Perform an Account Reconciliation Risk Assessment
A typical General Ledger contains hundreds, sometimes thousands, of accounts. Trying to reconcile every single one with the same level of scrutiny every month is inefficient and unnecessary. To optimize your financial close, you need a risk-based reconciliation strategy. This guide will show you how to assess risk and allocate your team's effort where it matters most.
Why Risk Assessment Matters
Not all accounts are created equal. A "Petty Cash" account with a $500 balance poses a significantly lower risk to your financial statements than a "Revenue" account with millions in transactions. By performing a risk assessment, you can:
- Reduce Workload: Shift low-risk accounts to quarterly reconciliation.
- Improve Accuracy: Focus your best accountants on the high-risk, complex accounts.
- Satisfy Auditors: Demonstrate a logical, controlled approach to financial governance.
The Risk Assessment Framework
To determine the risk level of an account, score it against these key criteria:
1. Transaction Volume & Volatility
Does the account have thousands of transactions a month (e.g., Operating Cash)? Or is it static (e.g., Security Deposits)? High volume equals higher risk of error.
2. Complexity of Calculations
Accounts that require manual estimates or complex formulas (e.g., Warranty Reserves, Deferred Revenue) are inherently riskier than accounts that just record bank feeds.
3. History of Adjustments
If an account frequently has "true-up" entries or audit adjustments at year-end, it is a High-Risk account requiring monthly scrutiny.
Assigning Risk Ratings
Based on the criteria above, categorize every GL account:
| Rating | Examples | Frequency |
|---|---|---|
| High Risk | Cash, Accounts Receivable, Inventory | Monthly (Manual Review) |
| Medium Risk | Fixed Assets, Prepaid Expenses | Monthly or Quarterly |
| Low Risk | Security Deposits, Common Stock | Quarterly or Auto-Certified |
Automating the Risk Control Matrix
Tracking this manually in Excel is difficult. Specialized software like Reconwizz allows you to assign risk ratings to each account directly in the system.
You can set rules like: "If the balance of a Low Risk account changes by less than 2%, automatically certify it." This frees up your team to focus exclusively on High Risk anomalies.