Category: Reconciliation

External Confirmations In Audits: Best Practices For Success

External Confirmations In Audits: Best Practices For Success

Consequences of Non-Compliance with SAs

Members of The Institute of Chartered Accountants of India (ICAI) must conduct financial audits following Standards on Auditing (SAs) when fulfilling their attestation function. These standards include procedures for external confirmations. These standards represent widely accepted audit procedures. Deviation from SAs, especially in matters related to external confirmations, necessitates a formal declaration by the member. Failure to do so may lead to disciplinary proceedings under The Chartered Accountants Act, 1949

One such standard is SA 505: External Confirmations. It discusses the use of external confirmations and procedures to obtain direct evidence from third parties as required in SA 330: The Auditor’s Responses to Assessed Risks and SA 500: Audit Evidence

External Confirmation is necessary to provide a true and fair view of a company’s financials. It serves as an extremely crucial piece of the puzzle when determining whether such financials are free from material misstatements or not.

External confirmations

External Confirmations is a substantive procedure used to obtain audit evidence as a direct written response from a third party (customer/ vendor/bank) to the auditor in a paper, electronic or any other form.  Generally, auditors use it to determine account balances, status, or terms of agreements. There are primarily three types of confirmation requests:

1. Positive Confirmation Request:

It requires the confirming party to directly respond to the auditor whether it agrees or disagrees with the information provided in the request. Positive confirmations provide reliable audit evidence.

2. Negative Confirmation Request:

It asks the confirming party to respond directly to the auditor only if the confirming party disagrees with the information provided in the request. They provide less persuasive audit evidence than positive confirmations.

3. Blank Confirmation Request:

It is a type of positive confirmation request where the third party (confirming party) is asked to fill in the amount or provide certain information. It provides persuasive audit evidence since the confirming party must verify the information before responding.

Why external confirmations is needed?

For instance, in Mahavir Jain vs. Disciplinary Committee (Appellate Authority), the auditor formed his opinion without obtaining and examining external confirmations of all bank balances as required by SA 505. Consequently, the Chartered Accountant Act of 1949 held him guilty under Part 1 of the Second Schedule. This was due to his failure to exercise the due diligence expected of him and not obtaining sufficient information to form an opinion.

Further, SA 505 is the 3rd most non-compliant standard as per Quality Review Board in Financial Year (FY) 2020-21.

Process of external confirmations

As we know, obtaining confirmations manually via letters or even e-mails is a cumbersome procedure. One needs to maintain records and follow up continuously. External confirmations involve repetition of the following steps for every audit:

  1. Determine the information to be confirmed;
  2. Choose the appropriate parties;
  3. Design the confirmation requests, properly addressed with a request to send responses directly to the auditor;
  4.  Send and follow-up requests.

To simplify and streamline this process, major firms are adopting automated confirmation procedures. This enables audit teams to concentrate on analyzing results and identifying exceptions rather than investing time in evidence collection.

A team of Chartered Accountants started Firmway, a web-based SaaS software company, to help auditors automate the confirmation process in compliance with auditing standards. They digitized the entire confirmation process. Auditors benefit from automating the time-consuming external confirmation process in the following way:

  • Save 90 % man-days by automating the process of sending, receiving, and tracking confirmations using our portal
  • Complete audit documentation as highlighted in peer review process 
  • Increase response rate by 2x
  • Send 1000+ confirmation requests in compliance with standards on auditing
Standardize Customer and Vendor Reconciliations-01

Streamlining Customer & Vendor Reconciliations with Firmway

Mastering Customer & Vendor Reconciliation: How Firmway Increases Reconciliation Efficiency?

Mastering customer and vendor reconciliation is a crucial account closure process that ensures the composition of an account balance matches with customer/ vendor reports. It substantiates that balances in financial statements are free from errors or misstatements. As a part of internal controls, it ensures the accuracy and completeness of certain ledger balances, such as banks, fixed assets, payables, receivables, etc.

The world is rapidly moving towards digitization, and this transformation is equally impacting the field of accounting. Automation, while a powerful tool, will not replace accountants but rather complement their roles. In fact, according to the 2021 EY Smart Closing & Reporting survey, where over 40% of company representatives were interviewed, there is a growing demand for higher levels of automation in various accounting processes, including accounts payable, receivable, and general accounting. Enter Firmway, a cutting-edge software solution that not only automates but also simplifies a wide range of reconciliation tasks, aligning perfectly with leading technology standards.

Out of all the ledger balances, reconciling customer and vendor accounts is the most tedious task due to countless transactions. Let’s understand customer and vendor reconciliation and how Firmway can increase and automate the reconciliation exercise.

Understanding Customer and Vendor Reconciliations

Customer Reconciliation 

Customer reconciliation is a critical activity for every business. It involves analyzing the receivables statements to identify any errors or irregularities. Customer reconciliation is a useful tool to get a clear idea of the actual position of receivables. In certain exceptional cases, it can be effective in identifying fraudulent activities pertaining to accounts receivable.

Advantages of Mastering Customer Reconciliation

  • Transactions with customers directly affect the revenue. Reconciling their accounts provides evidence supporting reported revenue. 
  • With regular reconciliations, you can keep track of aging accounts to ensure timely follow-ups. 
  • Helps facilitate internal and external audit and identify prospective bad-debts at an early stage.
  • Significantly reduce the likelihood of errors in receivable account management.

Vendor Reconciliation 

It involves comparing general ledger balances of vendors (suppliers) with statements from concerned vendors to identify and resolve differences.

Vendor reconciliation means reconciliation of a vendor’s account with the statement provided by the vendor.

Benefits of Mastering Vendor Reconciliation

  • Vendor balances are a result of credit purchases. Therefore, vendor reconciliation statements provide supporting evidence of purchases. 
  • Regular reconciliations help you resolve disputes and ensure the timely settlement of vendor accounts. 
  • Process checks the entity’s payables to vendor and vendors’ outstanding balances. This enables the company to identify duplicate invoice bookings.

Reconciling vendor and customer balances involve the study and analysis of countless transactions. KPMG’s Automation of financial reporting and technical accounting, September 2019 report, shows that more than 50% of businesses prepare financial records using MS Word and Excel. Furthermore, it is not a sustainable solution to accommodate the growing number of e-commerce transactions. Additionally, customer and vendor reconciliations provide corroborating evidence for two major account heads – revenue and purchases, of an Income statement. Moreover, the quality of these accounts is afflicted by manual intervention. As a result, inefficiency in the reconciliation process enhances the susceptibility of financial records to errors and misstatements.

Streamlining Reconciliation with Firmway’s Automation Software

To address these deficiencies effectively, it is essential to standardize and streamline the reconciliation process using automation software. With Firmway’s reconciliation software, data retrieval from customers and vendors is automated, ensuring a seamless experience. Moreover, using the embedded algorithm and smart AI tool, it can swiftly convert it to Excel format, organize it, and meticulously compare it with accounting records of respective companies to identify discrepancies. As a result, it saves accounting staff a considerable amount of time, allowing them to efficiently analyze the above-found differences.

Firmway: Your Solution for Seamless Customer and Vendor Reconciliation

Firmway is a web-based SaaS software providing automation in the space of confirmations & reconciliation. It offers multiple tools and services to automate all-round reconciliation and confirmation exercise whether it’s customer & vendor reconciliations, 26AS reconciliation, MSME confirmations or GST ITR reconciliations. It helps accountants and auditors utilize time and resources on analytical work rather than gathering and reconciling information. How are you dealing with reconciliations and confirmations? Time to do it with Firm-way!

Auto Reconciliation

Importance of AI and ML in Auto Reconciliations

Unlocking the Potential of Auto Reconciliation with AI and ML

In this digital age, forward-looking organizations are adopting cutting-edge technologies, such as Artificial Intelligence (AI) and Machine Learning (ML), on a continuous basis. AI, ML, and other technologies, including Auto Reconciliation, are not just trends; they are driving transformative changes. According to Mckinsey’s The State of AI in 2021 report, 56% of businesses are actively working to incorporate AI into various business functions, including finance, operations, marketing, and others.

Understanding AI and ML

As AI and ML are in their infancy stages, people often confuse them as being the same. AI is a technology that uses math and logic to simulate computers to mimic human behavior. In contrast, ML is the application of AI through mathematical models to enable continuous learning and improvement in computers. For instance, Google Assistant is an example of AI and Google’s Search Algorithm is an ML.

AI and ML benefit not only the IT operations of companies but also prove advantageous in all other business operations, including accounting, finance, supply chains, etc.

Why Finance & Accounts Departments Need Automation, AI & ML

 One of the most monotonous and tedious tasks in accounting is reconciliations.  Traditional reconciliation involves the collection of ledgers manually by the accounts team & reconciliation with the support of excel & spreadsheet formulas. Imagine the following scenario

AI and ML can enable the system to process various complex transactions into simple rules, offering customization opportunities within seconds. For example, TDS and GST reconciliations can be simplify by coding computers to learn the method of identification and application of different rates without any human intervention.

AI and ML will not only save employees time and effort but also lower the scope of human errors. According to Accenture’s CFO Reimagined, automation can cover a substantial 60-80% of accounting activities. Moreover, automation will greatly boost data integrity, preventing significant unidentified differences and freeing up employee hours for analysis. AI and ML also offer automated communication, reconciliation, and early loss identification, expediting settlements.

Firmway: Pioneering Auto Reconciliation with AI and ML

Firmway is one such SaaS-based interactive platform that simplifies reconciliations. It automates all the steps involved in reconciliations (communication with third parties, obtaining accounting records, reconciling, and generating summary reports) and strives for minimal human intervention. Businesses are rapidly transforming with technology, but there is still room for improvement, especially in accounting and reconciliations. Anticipating a revolution in the world driven by artificial intelligence and machine learning, Firmway plans to wholeheartedly embrace AI and ML to technologically advance accounting and auditing in the coming years. By effectively utilizing AI and ML, it aims to streamline and expedite reconciliation processes, ultimately saving users time and money. Moreover, it is diligently developing tech-savvy solutions for clients, actively putting innovations to work.

Automate TDS Reconciliation with Firmway: Benefits & Challenges

Automating TDS Reconciliation: The Crucial Move from Manual to Automated

Why Companies Need to Automate TDS Reconciliation?

On every sale of Goods and Services above a certain limit, TDS is deducted by the Customers. Companies need to reconcile TDS periodically by extracting transaction data from Accounting Software as well as 26AS form from the government portal to ensure that the client has given proper credit, and avoids penalties and audit risk. The TDS and TCS that are eligible for the credit are reflected in the statement while reconciling with the ledgers. The amount stated in the statement is like advance tax paid by the deductee and eligible for credit. Hence, matching the amount with the TDS/TCS in the receivable ledgers of the deductee is of utmost importance. If you are doing it manually, the process is very vast, but Firmway can help you automate TDS reconciliation in 60 seconds.

Unlocking Efficiency: The Role of Automate TDS Reconciliation

The majority of organizations today manually perform this crucial process.. A survey revealed that Tax managers dedicate, on average, at least 8 hours a week to manual data tasks, with 25 percent reporting spending over 20 hours a week on such tasks.

In another survey of over 280 companies, respondents reported that they could eliminate a large part of inefficiencies by using automated tools, with 62 percent indicating this. Just like the other financial functions, TDS reconciliation is faced with a similar fate. Accurate reconciliation of TDS credit reduces the tax burden and ensures no loss of TDS credit. However, due to manual intervention, faces the following challenges:

Challenges spelled out 

  • The possibility of manual errors in inputting amounts while filing returns can result in a mismatch.
  • For deductees having a large number of customers, matching amounts is a herculean task.
  • The frequent updates to 26 AS make it time-consuming to reconcile and track on excel worksheets.
  • Adopting manual work involves different people and their different ways of working. This lacks standardization and discipline. Communication usually happens over email and is easy to falsify or spread misinformation.
  • Proactive tracking of discussions with tax deductor/collector for corrections due to identified mismatches. Teams in finance need to manually communicate over endless emails and calls.
  • Version control of excel sheets and other documentation can cause issues in many instances.
  • While working in a manual model, you might keep the reports in disparate places.
  • The booking of TDS in the books of the deductor and deductee can be in different periods. Time differences spill over from one quarter to another quarter in the form of 26AS causing further discrepancies.

Automating this process will enhance accuracy for 26 AS and significantly reduce time in processing low-value-adding activities. It also enables us to manage TDS and TCS credits as per Form 26AS and books of accounts and almost nullify leakages.

What are the benefits of automating the reconciliation process? 

Running a tax department equates to having a plethora of responsibilities, especially concerning compliance and regulations like TDS. However, using reconciliation automation tools helps expedite the reconciliation process and closure while also improving compliance, enhancing accuracy, and promoting transparency.

  • Firmway’s 26 AS Reconciliation Software is also one such software that makes the reconciliation process seamless for the organization.
  • Maps the TAN number with the PAN number for reconciling
  • It can reconcile large volumes in 60 seconds.
  • With the flexibility, it offers in quarterly, half-yearly, and annual reconciliations, it highlights mismatches and classifies entries into different buckets for ease of operations.
  • Efficiently manages communication with parties and generates actionable reports as and when required

Automation of the reconciliation process is truly the need of the hour for any business. With manual processes, it’s difficult to scale in response to the reconciliation when there is an increase in transactions. However, automation of the process makes the entire process effortless.

Firmway – Assisting GSTR-3B

Mastering GSTR-3B: Your Guide to Smooth GST Return Filing

GSTR-3B – Insights

Government has published #GSTR-3B format for filing #GST return for the month July’17 and Aug’17.

With the objective of ensuring smooth roll out of GST and taking into account the concerns expressed by the trade and industry regarding filing of the returns in GST regime, it was decided that, for the first two months of GST implementation, the tax would be payable based on a simple return (Form GSTR-3B) containing summary of outward and inward supplies which will be submitted before 20th of the succeeding month.

Return in Form GSTR-3B notified contains details to be filed by the registered person in a simplified manner.

Details to be furnished in Form GSTR-3B is as under:

• Consolidated taxable value and tax amount of Outward and inward supplies liable under RCM

• Consolidated taxable value and tax amount of inter-state supplies made to unregistered persons, composition taxable persons and UIN holders

• Details of Eligible input tax credit

• Details of Exempt, nil-rated and non-GST inward supplies

• Details of Payment of tax • Details of GST TDS/TCS credit

GSTR-3B will have to be filed for the month of July and August, 2017 as per the timeline given below:

Firmway – Assisting you for GSTR-3B

Firmway assists you in aligning with your vendors and customers for filling of your FIRST GST Return (GSTR-3B) in a week’s time protecting you from unintentional interest cost. 

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cracking the code to GST success

Would only registration lay the perfect platform for Cracking Code to GST?

Would only registration lay the perfect platform in Cracking Code to GST Success

While ruling out the possibilities for any further delay in implementation of GST, Finance Minister Mr. Arun Jaitely had expressed, “Of the total 8.09 million existing tax payers, 81.1% have already registered.”
But would only registration itself  be the Cracking Code to GST?
Financial Discipline is the primary intention behind drafting the entire law from the grassroots level.
Financial Discipline also helps you find the revenue leakages and manage your business.
It also helps you allocate resources and expenses, which results in profitable outcome.

How can we expect a boy, who is not well-dressed at school entry, would stay disciplined all day?
Similarly, taxpayers also need financial discipline, by cleaning their books and ensuring accurate input tax credit carry-forward. Less carry-forward hence leads to fund blockage; excess invites scrutiny and interest costs.
How to ensure precise tax credit carry-forward with invoice-level matching?

Reasons for inaccurate input tax credit:

  1. The deductions made for quality issues, delay in delivery, damages, etc
  2. Rejected material not sent back.
  3. In the case of works contract: approval of completed work is pending, escalation claims, scope change claims, etc.
  4. Service tax credit on advance payment.
  5. Invoice not received for Goods and Services, and so forth.

What can we do to ensure the availability of accurate input credit?

A. Ask your suppliers, service providers, and customers to share pending invoices, debit/credit notes, and unreported deductions or rejections.

OR

B.  Get transaction and balance confirmation from suppliers, service providers and also customers.

Strict deadlines for Excise & VAT returns (ending June 30, 2017), fortunately affect the feasibility of this activity.
That is where FIRMWAY’s digital platform comes in, effectively expediting confirmations.
Firmway has achieved 80% reconciliations (in value) within a week, fortunately with minimal accounts team involvement.

 firmway.in to know more about Firmway.

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