Confirm retained earnings, reconcile the group and trace a sample

Steps 5 to 7 of Reviewing a Set of Books: close the year, the group and the evidence. You confirm the year’s result reached retained earnings, reconcile what the group companies say they owe each other, and trace a sample in both directions. Two short sections then cover the questions any reader of the accounts should ask and the signs that a control was skipped. It follows Steps 2 to 4. The examples use GadgetSphere’s group of three companies: GadgetSphere Sdn Bhd (GS, 22 retail branches), GadgetSphere Online Sdn Bhd (GSO) and GadgetSphere Distribution Sdn Bhd (GSD, wholesale to corporate customers), whose financial year ends on 31 December 2026. Check Before you start first: it lists what you need in hand, and why an auditor should be given read access only.

1. Step 5: confirm the year’s result reached retained earnings.
2. Step 6: reconcile the group companies with each other.
3. Step 7: trace a sample, in both directions.

Step 5: Confirm the year’s result reached retained earnings

The outcome: the profit for 2026 is inside equity, and 2027 opens with every profit-and-loss account at zero.

Every time Month End Processing runs, BigLedger posts one journal that moves the period’s result from the company’s profit-and-loss account to its retained-earnings account, the two accounts named on the company’s Default GL Codes. There is no separate year-end button. The twelfth month is closed the same way as the other eleven.

So the check is arithmetic, not a screen. Which arithmetic depends on where GS books its dividends:

• To an account in the Dividend section of the chart. BigLedger’s Profit and Loss places the Dividend section above its bottom line, so NET PROFIT/(LOSS) is already after dividends, and the transfer into retained earnings adds up the same sections. The check is retained earnings at 31 December 2026 = retained earnings at 1 January 2026 + the year’s NET PROFIT/(LOSS). Do not subtract the dividends again, or you count them twice.
• By a journal straight to the retained-earnings account. The dividend never passes through the Profit and Loss. The check is retained earnings at 31 December 2026 = retained earnings at 1 January 2026 + the year’s NET PROFIT/(LOSS) − those dividend journals.

Take the 31 December figure from the Balance Sheet, the 1 January figure from last year’s audited accounts, and NET PROFIT/(LOSS) from the Profit and Loss for the year.

A check that holds either way. Click the retained-earnings account on the Balance Sheet and read its lines for the year. Every line is either a month-end transfer, which BigLedger writes, or something a person keyed. The transfers should add up to the year’s NET PROFIT/(LOSS). Every keyed line needs a name: a dividend, a prior-year adjustment, an auditor’s adjustment. A keyed line nobody can name goes on the exception list.

When the statutory accounts are prepared, a dividend is a distribution to the shareholders, not an expense. It belongs in the statement of changes in equity, below the profit for the year. Because BigLedger’s NET PROFIT/(LOSS) is struck after the Dividend section, the profit for the year in the statutory accounts is NET PROFIT/(LOSS) with the dividends added back. Watch the sign: on BigLedger’s Profit and Loss each Dividend line shows as a negative figure (credit minus debit), and the Dividend section has no total row of its own. Add up the Dividend lines, then subtract that negative sum from NET PROFIT/(LOSS). A RM 200,000 dividend shows as -200,000, so a NET PROFIT/(LOSS) of RM 1,300,000 becomes a profit for the year of RM 1,500,000. The accountant who prepares the statements makes that move, and the reviewer checks it the same way, from the Dividend lines.

If the arithmetic is out by the result of one month, that month’s Month End Processing was run before its last postings. Re-run it and every month after it, in order.

How you know you got it right: the sum works to the cent, and January 2027’s opening Trial Balance shows no balance on any sales, cost or expense account.

Step 6: Reconcile the group companies with each other

The outcome: what GS says GSD owes it equals what GSD says it owes GS, and you know what must be removed before anyone adds the three companies together.

A Set of Books that spans several companies adds their ledgers together and eliminates nothing (Setting Up a Group). A sale from GSD to GS is revenue in one and a cost in the other, and both are in the total. That total is a combined statement, not a consolidated one: the eliminations are done outside BigLedger, by the group finance manager. BigLedger is tracking intercompany elimination.

So before any group figure is published:

1. Take the intercompany receivable in each company and the matching payable in the other, as at 31 December.
2. They must agree. When they do not, look first for timing (GSD invoiced on the 31st, GS received the goods on 2 January) and for a document keyed against the wrong company.
3. Agree the difference between the two finance teams before the year end is signed, not after. When they cannot agree it by the deadline, the same rule as Step 2 applies: quantify it, document it, escalate it. Neither side plugs it.
4. List the intercompany sales, purchases, balances and dividends that the consolidation must eliminate.

How you know you got it right: the intercompany balances agree to the cent between each pair of companies, and the elimination list adds up to the intercompany totals on both sides.

Step 7: Trace a sample, in both directions

The outcome: you can show the auditor that a figure in the accounts comes from a real event, and that a real event made it into the accounts.

From the ledger to the event. Pick 25 lines from the sales and receivables accounts. An automatic journal carries its Document Type and reference, so you can open the invoice, receipt or credit note behind it. Finance > Financial Report > Error Checking > Trace Document checks one named document for the journal, cashbook line and reversal it should have produced. A manual journal has no document behind it. Its support is whatever the finance team filed, which is why Step 4 matters.

From the event to the ledger. Pick 25 delivery notes, goods received notes and bank statement lines from the year, and find each one in BigLedger. This is the direction that tests completeness. A sale that was never invoiced will never show up in a sample drawn from the ledger.

How you know you got it right: all 50 items trace, or each one that does not is on your exception list with a reason.

The four questions to ask of any set of accounts

These questions matter to the owner reading the accounts as much as to the auditor, and none of them is answered by a report on its own.

Who answers them, and when. The finance manager writes an answer to each of the four at the year-end review, before the directors sign, and a director reads the answers. You know it is done when the review file holds a written answer to each question with its evidence: Report 3 for every cashbook with each old unmatched item explained, the provision calculation, the list of stock written down, and a list of commitments, guarantees and claims that a director has signed as complete.

Recognising a control failure in the evidence

A reviewer does not only check numbers. You also notice when the process that produced them was skipped. In BigLedger evidence, these are the signs, and each one needs an owner:

• A bank reconciliation with a variance, or no session at all for a month. The bank was not proved. Owner: the finance manager.
• Manual journals to a control account (receivables, payables, bank, output tax). Each one is a difference between the ledger and the sub-ledger that somebody created on purpose. Owner: whoever keyed it, to explain it.
• A journal dated in a month whose statements were already issued. The Journal Transaction listing can show Transaction Date beside Created Date, Created By, Updated Date and Updated By (switch the columns on). Sort by transaction date for December and read the created dates: a December-dated entry created in February moved December after the fact. Owner: the finance manager, who either approved it or did not know.
• A period set back to open after it was locked. Owner: the person who reopened it. Who May Change the Books explains why this needs a record kept outside BigLedger.
• The same person raising and paying a supplier. Owner: whoever assigns permissions.

Write each one down with a name and a date for an answer. A control failure with no owner is still open when the next auditor arrives.

How you know a failure is closed. An answer is not enough. The reviewer runs the same test again and it comes back clean: next month’s bank reconciliation exists and has no variance, the journal to the control account has its explanation and support filed, and the late-dated entry was either approved in writing or reversed. An item stays on the list until its test is clean, and the finance manager reviews the open items at every month-end.

When you are done, run the whole review’s success check.

What success looks like for this part

2027 opens with every profit-and-loss account at zero and 2026’s profit inside retained earnings, what each group company says the other owes agrees or carries a named difference, and your sample is traced in both directions.

Common mistakes in this part

Related documentation

• Reviewing a Set of Books: the whole review, with its success check.
• Financial Report applet: the reports and Trace Document.
• Setting Up a Group: what a Set of Books across companies adds together.