1、Account Reconciliation Training,November 25 SDIBCNovember 27 DSDPSCSDECSCJanuary 8 BDWBTC,Agenda,General IntroductionCommon Accounting Issues in China unitsNew P.R.C. Accounting StandardQ&A,Account Reconciliation Defined,“A fundamental control consisting of the comparison and analysis of the compone
2、nts of two records to help ensure that both are correct.”,Balance Sheet Account Reconciliations,Two major questions to ask What is the balance in the ledger? What should the balance be? Income statement accounts do not require a reconciliation. They are reviewed at each month-end.,Reconciliation typ
3、es,Assets Cash balance in General Ledger versus bank statement Accounts Receivable balance versus customer statement Prepaid expense - General Ledger balance versus remaining balance as calculated Royalties Receivable - General Ledger balance versus calculated amount Accrued Interest Income - Genera
4、l Ledger balance versus calculated amount Plant and Equipment versus the Fixed Asset System Inventory per General Ledger versus PC&L System,Reconciliation types,Liabilities Accounts Payable balance versus vendor statement Accrued Interest Payable versus calculated amount Royalties Payable - General
5、ledger balance versus calculated amount Payroll Tax Liability per General Ledger versus calculated amount Accrued Liabilities versus invoices/agreements,Example 1,Example 2,Example 3,Example 4,Example 5,Example 6,Example 7,Tips,Use a form for the reconciliation of accounts based on estimatesShow est
6、imate calculation or document the logic and parameters used for the accrual Example: accrued tax liability Show calculation of tax base for the year Multiply by applicable tax rate Deduct year to date payments to calculate the remaining liabilityAttach copies of supporting documents Appropriately ap
7、proved by management.,Agenda,General IntroductionCommon Accounting Issues in China unitsNew P.R.C. Accounting StandardQ&A,What happens without reconciliations?,Record keeping deteriorates and financial information becomes unreliable Management makes bad decisions Assets could be lost, destroyed or n
8、ot realized Erroneous payments could be made Costs get out of control Fraud and embezzlement can go undetected Customers and suppliers are not satisfied Profit sharing could be affected,CAS A/C Rec. Comments,Over and above D&T comments, CAS has found additional comments and concerns,Observation: For
9、 certain large customers, cash payments are not matched to specific receivables, due primarily to insufficient information provided by customer (Opel) with the payment. Action Plan: The unapplied cash amounts should be analyzed and any necessary adjustments recorded.,Audit comments,Source documents,
10、Source Document Type of Reconciliation Vendor Statements - Accounts Payable- Accounts ReceivableBank Statements - Cash AccountsSubledger Detail - Inventory- Accounts Payable- Accounts Receivable- Plant & EquipmentDebt Agreements - Accrued Interest Payable,Observation: Materials purchased for researc
11、h and development are not appropriately controlled and maintained within the accounting system. Action Plan: The Company should establish a system to properly manage and account for these materials, similar to the current system for managing inventories for normal production use.,Audit comments,Expe
12、nse Materials, Supplies and Tools in Stores (sub account 77000) 2400-77000 comprises expense materials and tools, operating supplies, maintenance items and expense tools.Held longer than 30 days which are used as aids to production, or in the maintenance of plants and equipment, but do not form a ta
13、ngible part of the finished product. Debited to an appropriate inventory sub account when purchased or received. A perpetual record must be maintained. Credit when they are withdrawn from stores by requisition for use.,Accounting Policy-DCAP,Observation: A detailed analysis supporting the adequacy o
14、f the allowance for slow moving and obsolete inventory is not prepared on a regular basis (quarterly). Action Plan: Inventory compilations and usage reports should be periodically reviewed to ensure appropriate accounting for potentially excess or obsolete inventories.,Audit comments,Excess and Obso
15、lete Materials and Supplies (sub account 94000) E&O Inventory: Due to annual model changes, overbuys, overproduction or other similar reasons, certain materials are no longer required for normal usage. When material has been approved as excess or obsolete , its total inventory should be transferred
16、from the active inventory sub accounts to 94100 (Productive) or 94400 (Non-productive). The loss on sales of E&O inventory should be charged to Account 8814 or 8815,Accounting Policy-DCAP,Audit Comments,Observation: MFG/PRO system books inventory and suspense payment account-4412 automatically based
17、 on material receipt. 4412 should be reversed after AP accountant receives original invoices from suppliers. As of March 2002, there are 515 receipts with aging over 6 months has not been cleared. Action Plan: CFO will review aging report of 4412 account and clear outstanding items in a timely manne
18、r.,Account has been analyzed and all required adjustments have been identified.Adjustments are recorded in the next months close. For example, if you have a reconciliation as of July 31 the adjusting entries must be recorded in the August close. Note adjustments less than $100,000 (USD) or 5% of the
19、 account balance can be recorded in the 2nd month (in this case the September close),What does reconciled in 30 days mean?-DCAP,Audit Comments,Observation: The company maintains certain inventories at customer facilities which are recorded as sales upon customer use. Shipping documents are not recon
20、ciled to monthly purchase list provided by the customer.Action Plan: The company will develop a systematic process for controlling shipping and invoices in-house and at customers.,Inventory Consigned to Others for Fabrication or Sale (sub account 98000) When inventory is shipped on a consignment bas
21、is, it is essential that the terms and conditions of consignment be established in a written agreement. Detailed records should be maintained for all inventory materials consigned to others. Confirmation of the quantity of inventory materials in possession of the consignee should be obtained as of t
22、he date of the physical inventory.,Accounting Policy-DCAP,Audit Comments,Observation: Although the company has singed warranty agreements with OEM customers, warranty terms vary from 3 years/100,000 km to 1 year/no limitation on km, warranty expense was not accrued based on management judgment. Acti
23、on Plan: Finance will co-op with sales to develop an appropriate method for warranty accrual.,Includes the provision for Policy & Warranty and Product Campaigns. The liability should be recorded on the basis of the best available estimates of the warranty agreement and past experience when actual am
24、ounts are not available. Dr: 8660-30400 Product Service Expense-Policy and Warranty Adjustments-Accrued LiabilityCr: 5483 Policy & Warranty Reserve,Accounting Policy-DCAP,Reserves and allowance accounts,Probably the most difficult to reconcile These reconciliations present the highest risk of error
25、D&T concentrates on these accounts Need to understand the business What is the basis for the accrual? What has been paid? What is the remaining liability? Need to justify the balance,Account should be reviewed by manager or other designated reviewer Plants should develop internal escalation process
26、for unresolved items Document this process and be prepared to share it with your auditors! Regular meetings and discussions On-job-training process Follow-up outstanding issues,Best Practice,Agenda,General IntroductionCommon Accounting Issues in China unitsNew P.R.C. Accounting StandardQ&A,New Stand
27、ard-Deferred Tax,Subsidiary X has depreciation difference between financial and tax reporting. In all years, the tax rate is 40%. DEPRECIATION: Book and Tax use different depreciable lives with the same cost and method (straight line). Asset Cost: 90,000 Asset Life: 5 years Book 3 years Tax,New Stan
28、dard-Deferred Tax-continued.,New Standard-Assets Impairment,When - Carrying amount of assets held and used in production may be unrecoverable. How Testing impairment of assets by using standard cash flow model. Measuring impairment: carrying value vs. fair value (discounted future cash flow)Accounti
29、ng Entries to record impairment (subsequent to consultation with FARS)Dr. 9172 or 9173 Adj. to Prov. For Depr./Amort. of Impaired Asset Cr. 3397 or 3497 Adj. to Prov. For Accum. Depr./Amort. of Impaired Assets,New Standard Assets Impairment-Continued.,To record actual disposition of the asset (Note:
30、 the net of 8801-195XX, and 8801-196XX is the gain/loss on sale)Dr. 10XX/18XX Cash/ Accounts Receivable (Proceeds amt., if any) Dr. 33XX-63560 Accum Depr. Deductions due to sales/disposals Dr. 8801-195XX Gain/Loss Net Book Value (not sub-acct. 19580) Cr. 32XX-62060 Fixed Assets-Deductions due to sal
31、es/disposals Cr. 8801-196XX Gain/Loss - Proceeds Received (not sub-acct. 19680),New Standard Assets Impairment-Continued.,Other impairments under new P.R.C accounting standard: Inventory Bad debt Long-term investment Short-term investment Construction in progress Intangible assets,Agenda,General IntroductionCommon Accounting Issues in China unitsNew P.R.C. Accounting StandardQ&A,
