Accounting Best Practices, Fifth Edition

12–23. Use Internal Audits to Locate Transaction Problems in Advance

The general ledger is, in a manner of speaking, the cesspool into which all corporate information flows—that is to say, all transaction errors will wend their way into this final repository of corporate information. Unfortunately, this is the only source of information from which the financial statements are created. Accordingly, poorly completed transactions upstream from the general ledger will eventually appear in the financial statements. This causes a great deal of extra work for the accounting staff, who must frantically research all of the problems that were caused upstream from the financial statements and issue journal entries to correct them—all in the few days during which the statements must be completed and issued. This problem occurs month after month unless something is done to find out where these problems are occurring and why.

The internal auditing staff can be brought in to discover where problems are occurring, why they are happening, who is causing the problems, and what can be done to fix them. By using the internal auditing staff, the controller can determine the exact nature of all the problems plaguing the financial statements. Though this best practice does not solve the problems, it at least identifies them, making it much easier for a controller to determine an appropriate response to each one. The long-term result of this approach is a gradual reduction in the number of errors in the ...