Five accounting red flags boards miss
Signals from the ledger that tell you the books aren't being run well.
I've sat in audit committee meetings where the finance director presents a clean P&L and the book is actually a mess. Here are five things a non-finance board member can look for.
1. The bank reconciliation gap. Ask how many days old the most recent fully-reconciled bank balance is. If it's more than ten business days, your books are stale and your management accounts are partly guesswork.
2. Vendor aging concentration. If one vendor represents more than 30% of accounts payable and they've been aged 60+ days, there's either a dispute, a cash-flow crunch, or someone has forgotten to reconcile the statement.
3. Intercompany suspense. Any balance sheet with "Intercompany — suspense" line above AED 50,000 at the end of a quarter is a red flag. Suspense accounts are where mistakes go to hide.
4. Credit notes booked after year-end. Check how many credit notes were raised in the first 30 days of the new financial year that relate to the prior year. If it's more than 5% of revenue, revenue has been overstated.
5. The "reclass" journal habit. Pull the month-end journals. If more than 10% of them are described as "reclass" with no further detail, someone is papering over coding errors rather than fixing them.
These are simple signals — and they've tipped us off to everything from a £2M accrual gap in a retail client's books to a shareholder pocketing cash that was meant to be dividends.
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