How to do Balance Sheet Substantiation?

Balance sheet substantiation is a process of verifying the accuracy and completeness of the account balances presented on the balance sheet. The process involves reconciling the balances in the general ledger to external sources of information such as bank statements, invoices, and other supporting documentation.

Here are the steps involved in the balance sheet substantiation process:

Identify the accounts to be substantiated: The first step in the process is to identify the accounts that need to be substantiated. This includes all accounts that are presented on the balance sheet, including cash, accounts receivable, accounts payable, inventory, fixed assets, and long-term liabilities.

Collect supporting documentation: Once the accounts have been identified, the next step is to gather supporting documentation for each account. This may include bank statements, invoices, purchase orders, and other relevant documents.

Reconcile account balances: The next step is to reconcile the account balances in the general ledger to the supporting documentation. This involves comparing the balance in the general ledger to the balance in the external source of information and identifying any differences.

Investigate differences: If there are any differences between the balance in the general ledger and the supporting documentation, the next step is to investigate the cause of the difference. This may involve reviewing transactions to ensure that they have been recorded correctly and investigating any discrepancies or errors.

Adjust account balances: Once any discrepancies have been identified and investigated, the next step is to adjust the account balances as necessary. This may involve making journal entries to correct errors or adjusting account balances to reflect the correct values.

Document the process: Finally, it is important to document the balance sheet substantiation process. This includes documenting the steps taken, the supporting documentation reviewed, and any discrepancies identified and resolved. Proper documentation helps to ensure that the process is repeatable and transparent, and helps to demonstrate compliance with regulatory requirements.

Overall, the balance sheet substantiation process is an important part of ensuring the accuracy and completeness of financial statements. By reconciling account balances to external sources of information and investigating any discrepancies, organizations can help to ensure that their financial statements are reliable and comply with regulatory requirements