Maintaining, reviewing, and auditing the Chart of Accounts (COA)

Find out interesting insights with Shaun Walker, Manager Risk Advisory Services BDO, USA

Moderated by Emily, Digital Transformation Consultant at Hyperbots

Emily: Hi, everyone! This is Emily, and I am a digital transformation consultant at Hyperbots. I’m very pleased to have Shaun Walker on the call with me. Shaun is a Manager of Risk Advisory Services BDO, USA, and the topic we’d be discussing today is maintaining, reviewing, and auditing the chart of accounts. So just to get things started, Shaun, the first thing that I’d want to ask you is, how often should a company’s chart of accounts be audited? And why is this frequency important?

Shaun Walker: Absolutely. I would say, first of all, internally, it should be reviewed every quarter, and from an audit standpoint, either internal or external audit, it should be done annually. I guess one example would be a manufacturing company. They should conduct quarterly reviews to make sure new expenses related to materials are correctly added, and allocated under cost of goods sold, whereas for an annual audit, they’d be looking for whether expense classifications align with US GAAP or IFRS.

Emily: Got it. Who should be responsible for auditing the chart of accounts? And what roles do internal and external auditors play in this process?

Shaun Walker: The internal audit team should conduct quarterly reviews. They understand the company’s policies and financial transactions, whereas the external auditors should be involved in the annual audit. They’ll provide an objective perspective and ensure compliance with external regulations.

Emily: Understood and Shaun, how exactly can AI support the auditing process of the chart of accounts?

Shaun Walker: AI can automate several processes, such as detecting anomalies, like a duplicate or improperly classified account. AI is a powerful tool that can recognize patterns, perform compliance checks, and continually monitor the chart of accounts. If there are any irregularities, AI can alert the finance and accounting team to potential errors.

Emily: Understood. What are the recommended workflow approval metrics for making changes to the chart of accounts? And why are they important?

Shaun Walker: The approval should be based on how major the change is. For example, if the change to the chart of accounts is just renaming an account, a finance manager could approve that but if there’s a major change like adding or deleting an account, the Finance Director, CFO, and even the Audit Committee should be involved in the approval.

Emily: Got it, that makes complete sense. Also, Shaun, what role can AI play in ensuring that changes to the chart of accounts maintain its integrity?

Shaun Walker: AI can validate proposed changes against a set of rules, ensuring consistency and compliance. It can also analyze the impact of changes on financial statements, preventing unintended consequences.

Emily: Got it. Could you provide an example of a situation where AI helped detect an error or anomaly in the chart of accounts?

Shaun Walker: Sure. One example is when a company has a revenue recognition policy. AI can detect multiple entries being booked in an account that shouldn’t be, flagging those entries and prompting a review. This could lead to the creation of a more specific account, rather than using a broad classification.

Emily: Understood. Just curious, what is the recommended workflow for implementing changes in the chart of accounts? And how does AI integrate into the process?

Shaun Walker: There are a few steps involved. First, the finance team or department head submits a change request. An initial review is performed, and AI can validate the request against rules and standards set up in the system. Minor changes may be approved by a person at a certain level, while major changes go to the CFO or Audit Committee for approval. AI tools can implement changes and monitor the impact. Afterward, there should be a post-implementation review to ensure the changes had their intended effect.

Emily: Got it. Just to wind things up, Shaun, can you share any best practices for maintaining the chart of accounts’ accuracy and integrity over time?

Shaun Walker: Sure. The first thing is having regular reviews and audits. Implement AI to continuously monitor and validate entries. There should be a clear approval hierarchy depending on the change, and the change criteria need to be well documented. Both the internal and external audit teams should provide a comprehensive review.

Emily: Got it. Thank you so much, Shaun, for sharing these valuable insights into maintaining and auditing the chart of accounts. Your examples and guidance have provided a clearer understanding of how companies can ensure financial accuracy and make better decisions. Thank you for joining us today.

Shaun Walker: Thanks for having me. It was my pleasure to add more context and information to this topic.