O'Reilly logo

Accounting Best Practices, Fifth Edition by Steven M. Bragg Englewood, Colorado

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

12–12. Reduce Investigation Levels

Before issuing the financial statements, they are subject to an intensive review by the controller, who compares each line item to the budgeted level and thoroughly investigates each item that varies significantly from the budget. This is an admirable and necessary practice, since it catches errors and also prepares the controller for any questions from the management team regarding those same variances. However, the practice can be taken too far. For example, it is almost impossible for any revenue or expense line item to match exactly the budgeted amount (unless it is related to a long-term contract that ensures totally predictable amounts), so a controller who investigates virtually all variances will be doomed to review every line item in the general ledger. This is an enormous task and also an unnecessary one, for the vast majority of variances are so small that there is no point in reviewing them—even if there is an error somewhere, the total impact is so insignificant that there will be no noticeable impact on corporate profitability.

A very simple best practice that eliminates most of this review work is to reduce investigation levels to the point where only the largest variances are checked for accuracy. This can take several forms. For example, a minimum dollar amount, such as $10,000, can be set for the amount of a variance that a controller will bother to investigate. Alternatively, it can be on a percentage basis, such as anything ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required