Techniques Used in Reviewing Financial Information

Financial Reporting Example: When reviewing a report of year-to-date activity, analysis would include comparing to other information to evaluate whether the information presented is correct. This may include comparing to an expectation (budgeted amounts) or prior periods. Comparison items that are inconsistent would be researched to analyze if discrepancies were appropriate or if adjustments were necessary.

Personal Example: When you receive your pay statement, the net amount of pay is different from what you were expecting. You would need to do the following: 1. Substantiate that the gross amount is correct. You would do this by multiplying the current rate by the current hours. You may also want to compare the current rate of pay to the rate from the previous pay period to determine if there have been any changes. You should also verify that the number of hours is correct, as submitted on your time and absentee cards. 2. Compare Before-Tax Deductions to the previous pay period to see if there have been any changes. If you are uncertain about the description of one of the deductions, you can go to the MyU portal (myU.umn.edu) > My Pay Human Resources Self Service to find out more information. You note that there is a new Parking deduction, which you have recently authorized. 3. Review taxes and After-Tax Deductions. You note that there is a slight change in the amount of taxes withheld, which you can attribute to the new Before-Tax Deduction. 4. Review After-Tax Deductions and note that there are no changes. 5. Calculate the net amount of pay by taking the gross amount less taxes and deductions.

Financial Reporting Example: A reconciliation of cash would identify support for any differences in the balance of cash recorded in the general ledger compared to what appears on a bank statement. Reconciling items may include outstanding checks, deposits in transit, bank fees etc. After adjustments are identified, the final balance should be the same for both the bank and the general ledger. The following is a high-level example of how a reconciliation may be structured:

Cash per Bank = $110
Outstanding Checks = (30)
Deposits in transit = 20
Total = 100
Cash per GL = 100
Difference $0

Outstanding checks would be supported by a listing of checks that have not cleared the bank.

Deposits in transit would be supported by a listing of deposits that have not settled at the bank.

Personal Example: Reconciling your checkbook to a bank statement. Very often, you will have adjustments that you need to make to both your checkbook and the bank statement in order to have a correct balance. Common adjustments to your checkbook balance include deductions for items such as service charges or debit card transactions that did not get recorded in your checkbook register. Adjustments to the bank statement balance include deductions for any outstanding checks or additions for deposits in transit. After you make the appropriate adjustments to each, the adjusted balance should be the same for both the checkbook and the bank statement.

Financial Reporting Example: A review may be of supporting documentation of a variety of financial transactions including reports, originating documentation, etc. For example, an invoice may be received from a vendor. Prior to submitting for payment, a review would include reading through the information provided on the invoice and compare to the purchase order to evaluate whether it is reasonable that the invoice is correct and for services rendered.

Personal Example: Each payday you should review your pay statement to ensure that you have been paid the correct amount and that the appropriate deductions have been taken out of the gross amount, such that the net amount paid is accurate. To check for reasonableness, you might first look at the net pay to make sure it is reasonable or consistent with prior periods. If it is not reasonable, you would then start looking at each transaction on your pay statement.

Financial Reporting Example: During the review of a report, an error may be identified requiring the entry of a journal entry. After the journal entry is posted, the report is rerun and compared to the original to verify the journal entry posted to the general ledger as expected.

Personal Example: During the last pay period, in addition to your regularly scheduled hours, you worked eight hours of overtime. When you receive your next pay statement, you should verify that the eight hours of overtime have been included in the current earnings along with your regular pay.

Financial Reporting Example: Substantiation may be achieved in various ways including recalculating an amount recorded, identifying corroborating supporting documentation, observation, etc. For example, the existence of a capital asset may be substantiated by identifying and viewing the capital asset within its documented location.

Personal Example: Your supervisor advises you that you will receive a 3% annual increase in pay. You want to substantiate that your new rate of pay is correct. You can do this in several ways: Apply a 3% increase to your current rate of pay or take your current annual salary and apply the 3%, then divide by the number of pay periods to determine your rate per pay period.