Part of the Financial consolidation series.
In a group, each subsidiary's balance sheet reconciliation is its evidence that the number it submits to consolidation is real. Group finance mostly sees that evidence through review. A reconciliation that balances is not sufficient - it proves only that the preparer can add up. The reviewer's job is to establish that the balance is grounded in an independent source, that every unexplained item has an owner and a deadline, and that last month's corrections were actually posted.
How do you review a balance sheet reconciliation?
A reviewer should work through a fixed sequence, not scan the document for problems. Start by confirming the opening balance agrees to the signed reconciliation from the prior period - this links the records into a chain and catches restatements or silent corrections. Then confirm the closing balance ties to an independent source: a bank statement, an aged debtor or creditor sub-ledger, a third-party confirmation, or a fixed asset register. A GL detail listing is not an independent source; it is the same system asserting the same number twice.
Next, inspect every reconciling item. Each one should carry a classification - timing difference, known error, or policy provision - a named owner, and a date by which it will clear. Unclassified items are not reconciling items; they are unresolved balances dressed up as one. Check that items flagged for correction in the prior month have actually been posted. Then confirm that supporting evidence is attached and that the preparer and reviewer are named and dated on the face of the document. Any item older than the threshold set in the group policy should be flagged before it reaches group review, not discovered during it.
What does a good balance sheet reconciliation look like?
A good reconciliation is a document a new reviewer can follow without asking questions. It opens with the account name, entity, period, currency, and GL balance. It shows the opening balance with a reference to the prior signed copy. It shows the closing GL balance tied to an independent source, with the source named and the reference quoted. The reconciling items section lists each item on its own line with classification, owner, expected clearing date, and a hyperlink or reference to the underlying evidence. There is a separate column for items carried from the previous period, so the reviewer can see at a glance whether the population is shrinking or growing. The preparer signs or initials and dates it; so does the local reviewer; and both sign-offs fall before the group submission deadline.
A practitioner summarising the standard on r/Accounting put it plainly: the sign of a good controller is 'balance sheet reconciliations, well done with no BS and old things lingering.' That is a useful benchmark - not aspirational, but diagnostic.
Why do old reconciling items linger, and how do you stop them?
Old items linger because the reconciliation process has no escalation rule. When an item has no named owner and no clearing date, it rolls forward month after month because no individual is accountable for resolving it. The second cause is a GL detail listing passed off as a reconciliation: if the reviewer accepts a listing as evidence, there is no mechanism to even see that items are ageing.
The fix is structural. The group policy should set an ageing threshold - described in terms of months, not pounds - beyond which any unresolved item must be escalated to group finance in the completion report. Local reviewers should be required to sign off that no items breach the threshold without prior group agreement. Once escalation is automatic and visible, the incentive to let items drift disappears.
What should the group reconciliation policy say?
A group reconciliation policy should cover eight areas. First, account ownership: every balance sheet account must have a named preparer and a named reviewer, and they must be different people. Second, risk-rating: accounts are classified as high, medium, or low risk based on materiality, complexity, and transaction volume. High-risk accounts - bank, intercompany, tax, provisions, suspense - receive the most detailed review; low-risk accounts receive a lighter-touch sign-off. Effort should follow risk, not habit.
Third, frequency: high-risk accounts are reconciled monthly; lower-risk accounts may be quarterly, but the group should set this explicitly rather than leaving it to the entity. Fourth, thresholds: the policy should define the monetary and percentage levels below which a reconciling item need not be itemised separately. The group sets those thresholds based on materiality for each entity; the specific numbers are a judgement call and should be reviewed annually. Fifth, evidence standards: the policy lists the acceptable independent sources by account type and states that a GL extract alone does not qualify.
Sixth, sign-off timing: local preparer and reviewer sign-off must fall on a named day in the group consolidation timetable, before the subsidiary submission window closes. Seventh, ageing and escalation: the policy defines the maximum age of an unresolved item before it must appear in the escalation section of the completion report. Eighth, the completion and exceptions report: each entity submits a short report to group finance each period confirming how many accounts were reconciled, whether all sign-offs were obtained, and listing any accounts with breached thresholds or aged items. This is the mechanism by which group finance supervises the population without reviewing every reconciliation.
Suspense and clearing accounts deserve a dedicated paragraph in the policy. These accounts accumulate items quickly and clear slowly when nobody owns them. The policy should require a zero or near-zero balance at period-end, with any balance fully explained and individually approved by group finance.
Provision 29 of the UK Corporate Governance Code addresses material controls, which includes reconciliation controls for listed groups - see Provision 29 and material controls in the group close for the governance framing. Intercompany balances are a related area where reconciliation failures cause consolidation errors - why intercompany reconciliation matters covers that in full. The reconciliation deadline sits inside the broader close sequence described at month-end close process: group checklist.
What should group finance review itself, and where can it rely on local review?
Group finance should perform its own detailed review on high-risk accounts: all bank accounts, intercompany balances, group tax accounts, material provisions, suspense accounts, and any account with items aged beyond the policy threshold. For everything else, group finance can rely on the local preparer and reviewer sign-off, provided the completion and exceptions report confirms that sign-offs were obtained on time and that no thresholds were breached. Reliance on local review is a position the group earns by receiving clean reports consistently - not a permanent delegation.
How do you improve balance sheet reconciliation across the group?
Improvement starts with a baseline. Group finance should run a one-period exercise in which it collects all reconciliations and applies the reviewer checklist below to each one. The result will typically show a small number of entities producing documents that meet the standard, a larger number producing GL listings, and a spread of ageing profiles. That picture, shared with entity FDs, is more persuasive than a policy memo.
From the baseline, set a phased timetable for every entity to meet the policy standard, prioritising high-risk accounts. Introduce the completion and exceptions report immediately, even before the standard is universal - the act of reporting exceptions creates accountability. Review the ageing profile in each report rather than the individual reconciliations; the pattern tells you where the risk sits.
Reviewer's checklist
- Opening balance agrees to the prior period's signed reconciliation.
- Closing balance is tied to an independent source (bank statement, sub-ledger, third-party confirmation, or fixed asset register) - source named and reference quoted.
- Every reconciling item is classified as timing, error, or policy provision.
- Every reconciling item has a named owner and an expected clearing date.
- Items flagged for correction in the prior period have been posted.
- No item exceeds the ageing threshold without prior group approval.
- Supporting evidence is attached and cross-referenced.
- Preparer and reviewer are different individuals, both named and dated.
- Sign-off date falls within the group consolidation timetable.
- Suspense and clearing accounts show a zero or fully-explained balance.
Common questions
What is the difference between a balance sheet reconciliation and a GL detail listing?
A GL detail listing shows transactions from the same system that produced the closing balance - it is the ledger confirming itself. A balance sheet reconciliation ties the closing balance to an independent source outside the GL, such as a bank statement, a sub-ledger, or a third-party confirmation. Only the second approach provides evidence that the balance is real.
How often should subsidiaries reconcile balance sheet accounts in a group?
High-risk accounts - bank, intercompany, tax, provisions, and suspense - should be reconciled every month. Lower-risk accounts may be reconciled quarterly, but the group reconciliation policy should specify the frequency for each risk tier rather than leaving it to local discretion. The sign-off deadline for each period should be set in the group consolidation timetable.
What makes a reconciling item acceptable to a group reviewer?
An acceptable reconciling item has four attributes: a classification (timing difference, known error, or policy provision), a named owner who is accountable for clearing it, an expected clearing date, and attached supporting evidence. An item that lacks any of these four is an unresolved balance, not a reconciling item, and should be treated as an exception requiring escalation.
Why should group finance review intercompany reconciliations centrally?
Intercompany balances are high-risk because a mismatch between two subsidiaries does not cancel in consolidation - it creates a consolidation error that is hard to trace after the period closes. Group finance is the only party that can see both sides of the intercompany position simultaneously, which is why central review is more effective than relying on each entity to reconcile independently.
What should the monthly completion and exceptions report from each entity contain?
The report should confirm the total number of accounts reconciled in the period, confirm that all required preparer and reviewer sign-offs were obtained before the submission deadline, and list any accounts where the ageing threshold was breached or where sign-off was not completed on time. It is the mechanism by which group finance supervises the reconciliation population without reviewing every individual document.