When my wife says that I did something (usually wrong), and I say that I didn’t, she quite rightly asks me ‘Who is the better judge of your behaviour, you or me?’ And I know then that she’s got an apology coming. The other party, my wife, trumps what I think. With bank feeds though, that data that arrives electronically from the bank into your accounting system, automatically or with one touch, it pays to remember that, with few exceptions, it is the other way around: of the two parties involved, you and the bank, it is you who should know more about these transactions. You know more about them than the bank because they are about your operations, and the bank is merely a service connecting your money with its source or destination.
Why is this important I hear you say? Well because with these feeds you have a choice as to how far you treat the information – the bank’s information – as a sufficient record, along with any internal paperwork that you might have, as your information, that is, the official record of what your organisation has done financially. How happy are you to accept the information supplied by the bank – the feed, i.e. the amount, date and particulars of the transaction recorded by the bank – as your record of what went on in your business?
At one end of the spectrum you can do no bookkeeping before the bank feed arrives, letting the contents of the feed, what the bank says as to the giver and receiver, and maybe even the purpose of the transaction, define the financial record of your organisation.
On this end you either think that your bank doesn’t make mistakes, or that checking up on them is not worth the effort.
At the other end you can treat the bank feed as merely an electronic version of the bank statement, a listing of the transactions processed to date by the bank. At this end your aim is to enter into your accounting system, as soon as you can, and from valid and authorised documents, all those events that affect the calculation of your financial position and performance. This information is available either because you initiated the transactions (e.g. payments), you have found out about them (e.g. donations), or you expect them (e.g. receipts).
The choice on this continuum depends on what you need in order to meet your objectives, i.e. what the accountants call ‘internal control’:
the process designed, implemented and maintained by (you) to provide reasonable assurance about the achievement of (your) entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations[i].
So by all means take a feed from your bank, but please first consider how it fits in with your internal control (or the internal control you should have). If you need help with this, give us a ring here at Business by The Book.
[i] Auditing Standard ASA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, Auditing and Assurance Standards Board, November 2013