Why Vendor Confirms for Accruals are Superior to Internal Estimates
As an ex-auditor, it leaves a big GAAP in my heart (get it?) when I hear accounting teams choose to internally estimate accruals (highest risk of misstatement) over sending vendor confirms (least risk of misstatement). Below are 3 reasons why vendor confirms (reaching out to vendors directly to confirm unbilled estimates) are far better than internal estimates (calcs based on analysis from Accounting/FP&A or estimates provided by internal business partners):
Reason #1:
Completeness and Accuracy
The best place to get the best estimate for unbilled vendor expenses is….the vendor themselves! You may have reports or fancy run rate analyses to help you calculate estimates, but those efforts are futile when non-standard activities (aka “life”) occur. In other words, vendor “X” may be consistently billing $50K each month since last year – but your estimation prowess is no match for that unexpected overage charge of $75K that just happened to land at quarter-end!
Reason #2:
Less Work for Your Company.
When vendors can provide estimates, you, FP&A, and your internal business partners no longer have to spend time coming up with your own estimates. Your marketing team, for example, would much rather spend time doing marketing than work with finance to comb through invoices and come up with an estimate of their unbilled expenses each month (especially when vendors are in the best position to report these accruals to begin with).
Reason #3:
Less Documentation Required.
Unlike internal estimates, confirms received directly from vendors don’t require spreadsheet support (since it’s an external confirmation). This means less work for your JE reviewers and, more importantly, less chances of your auditors catching those annoying spreadsheet errors.
In conclusion...
Yes, not all vendors will respond to your confirmation requests, but with automated workflow solutions like Gappify Alan, it’s easy to automate your vendor outreach and make them the first stop for accrual estimates.
Remember, the stakes are too high from a financial misstatement/compliance standpoint to rely on internal estimates and the benefits of asking your vendors to confirm are too significant to ignore.
Jotham Ty
Founder & CEO
Gappify, Inc.
About Gappify
Gappify, founded in 2016, is a cloud-based provider of accrual automation solutions for mid-market and enterprise accounting teams. The company is headquartered in New York City, with offices in Berkeley, California, Washington DC, and Manila, Philippines.
Its team consists of accountants and CPA’s from Big Four accounting firms and software innovators. Gappify is also supported by strategic advisors from some of the world’s most recognized technology companies and is affiliated with the top companies & accounting organizations.
