Writen by Stefan Farrugia • 29th August 2018
Once you have created the first draft of your subsidiary management accounts, you will need to double check your books for any discrepancies or unusual figures. You can do this by running the two most important types of management accounting reports:
Profit and Loss
At this stage, it is advisable to issue reports that help trace misbalances in accounts. To begin with, you will need to issue a profit and loss for every subsidiary, and this is ideally done month-by-month to help spot discrepancies more easily. If you’ve been through the company figures you should understand what the deviations from the average are on a monthly basis. Once this report is run, any errors of a substantial amount will stare you in the face.
The Trial Balance
Next report is the trial balance. This can help trace the mathematical correctness of each transaction. Any inconsistencies in transactions, or mistakes in double entry, will show in this report. You should therefore be able to spot any errors quite easily.
A list of transactions such as inter-company loans, purchases and sales, should also be issued. These will need to be adjusted in intercompany accounts and should therefore be investigated and processed at an early stage. Creating a list for each company in the group will be of use at a later stage.
Once all of the above has been reviewed and adjusted for subsidiary companies, you will need to close your financial statements and work on intercompany consolidation accounts.
The first step is to eliminate transactions that were listed for each subsidiary, followed by a run through of the same reports above for the group. Most consolidations will however not be very smooth. It can be quite tough to get group reports to work out the way you’d want them to, however running accurate reports, together with the right experience, will help you become faster at concluding consolidations by intuitively spotting errors within the relevant reports.