A tie-out binder, or support binder, is a slang phrase that refers to reconciling financial data from different sources. Let's consider how this works when it comes to the practice of filing financial statements.
What Is a Financial Statement Tie-Out?
Conducting a tie-out for a financial statement means making sure that the numbers in the financial statements, like a 10-Q, agree with the numbers in the audit. If there is a difference, it must be reconciled. This is critical for compliance with SOX or GAAP standards, as any mismatched figures can be a red flag that raises the attention of auditors. The process can be time-intensive, but financial reporting software makes it faster and easier to complete. The process also can uncover deeper issues in a finance team’s processes or data integrity so they can be resolved as quickly and thoroughly as possible.
Purpose and Process of Tie-Outs
Whether it's a 10-Q or another financial reporting form, the numbers need to match. Making sure they match — doing a tie-out, in other words — is important. Other than being consistent, why does this matter?
Let's pull back and think about what would happen if the figures did not match. Maybe an employee transposed two numbers, writing $1,001 instead of $10.10. That would be a pretty easy mistake to rectify. Other mistakes aren't so simple to fix. Including a flawed figure on a financial report carries that error forward, and there can be ramifications.
Think about all the times financial statements support decision making. What would happen if a major decision were made involving a figure that was inaccurate or plain wrong?
A typical tie-out process typically looks like this:
- Gathering data from each statement
- Comparing line items to find any discrepancies
- Investigating any mismatching data sets that are discovered
- Correcting erroneous entries
- Finalizing the sign-off
What Is “Tick and Tie” Accounting?
Tick and tie accounting is a phrase you'll often hear in connection with tie-out in accounting. Let's define the term and give examples, so you understand how a tick and tie accounting process works.
Tick in this context means tick the boxes — in other words, check things out. Tie means reconcile. Putting it together, tick and tie means going through all the numbers and doing the reconciliation process we've been discussing. Some of the most common mistakes typically found through this process include misstated appreciation and overlooked intangible asset adjustments.
What kinds of figures need tick and tie accounting?
- Assets should be equal to the sum of liabilities and equities.
- Net income should be equal to the first line of a cash flow statement.
- A cash flow balance at one period's end should be equal to the balance at the beginning of the next.
- A period-end equity balance should be equal to the equity balance at the start of the next.
- The sum of each type of equity balance (i.e., stocks, paid-in capital and earnings) should be equal to the sum of equity on the balance sheet.
- The sum of depreciation for business assets should match the depreciation line on the cash flow statement.
If we were to make a rule simplifying this information, it would be: When information is listed across multiple statements, the number must match. If it does not match, there is an issue to be resolved using the tick and tie accounting approach.
For example, if the depreciation total does not add up, something is wrong. An asset may have been omitted, or the wrong formula may have been applied. There are several possible reasons for the error. An accountant will begin tick and tying to figure out what went wrong and reconcile it.
How Financial Reporting Software Assists Tie-Outs
Using integrated financial software can ensure tie-outs are performed with maximum efficiency and virtually error-free processes. Not only can these systems prevent errors through automatic checks and calculations, but they also provide a multi-stakeholder environment for making corrections. This means legal and finance teams can work alongside outside audit teams to make changes at the same time without the risk of overwriting each other and causing confusion.
A tie-out financial statement usually happens alongside financial reporting. When you use financial reporting software to manage 10-Q and other types of SEC filings, it actually means the tie-out financial statement is easier. Since the software pulls information in and applies it to the necessary form, it reduces the chance for human error, such as transposing or omitting numbers. While you'll still need to perform the tie-out process, the chances of finding an error are reduced.
With the ActiveDisclosure tie out and support binder feature in ActiveDisclosure, the user can document specific values within the 10-Q (or other forms) creating a digital paper trail by linking to support files in internal or external repositories. All of the linked support details then can be quickly exported in a PDF for audit proposes. Discover how our ActiveDisclosure financial reporting software streamlines this and other aspects of the required reporting process.
