Pretty Reports, Ugly Reality: Why Performance Reporting Starts With the Balance Sheet
- Teresa Debevec
- Jan 5
- 3 min read
Updated: Jan 7
Many organisations have enhanced their performance reporting. Dashboards are more visually appealing, commentary is more assured, and reports are delivered more quickly.
However, beneath the polished language and professional appearance, a key question remains: can we trust the numbers? Boards, Audit Committees, and Directors should confirm this by ensuring the balance sheet is correctly reconciled.
They should request detailed reconciliation documents, set clear review schedules, and arrange independent checks as needed. These actions strengthen governance and improve the reliability of financial reports.
Regardless of how impressive a report appears, if the balance sheet is not properly reconciled, any insights drawn from it are unreliable and potentially misleading.
Performance Reporting Starts With the Balance Sheet
While most management discussions focus on revenue growth, margins, and EBITDA, the balance sheet provides the true financial picture. It offers a snapshot of a company’s assets, liabilities, and equity at a specific point in time.
If balance sheet accounts are not reconciled, performance reporting remains incomplete.
Management may believe they are tracking performance, but without verified numbers, this confidence is misplaced. Directors should request regular reconciliation reports and consider independent reviews as part of governance and risk oversight. These measures help ensure data reliability and support informed decisions.
The P&L Obsession
Most management and Board reports focus on the Profit & Loss statement, highlighting monthly changes, budget comparisons, and margin analysis.
However, even a strong P&L can conceal significant issues within the balance sheet.
Balance sheets may hide issues such as cash balances not matching bank statements, understated or incomplete payroll, superannuation, or tax liabilities, outdated receivables or payables, unaddressed suspense and clearing account balances, and unreviewed prior-period errors. These problems can compromise the accuracy of performance reports.
When “Unreconciled” Doesn’t Look Wrong
A major risk with unreconciled balance sheets is that they often appear correct to those without accounting expertise.
Directors and non-experts should watch for warning signs such as unexplained balances, recurring suspense accounts, clearing accounts with balances, and ongoing discrepancies. For example, repeated unexplained balances may indicate recording errors. Growing suspense accounts suggest transactions are not posted correctly. Long-standing clearing account balances may point to improper cash handling. Persistent discrepancies require investigation to prevent errors. By monitoring these signs, directors help ensure the reliability of performance reports.
Performance Reporting Built on Assumptions
If financial reports are reviewed without a reconciled balance sheet, decisions rely on assumptions rather than facts.
Assumptions about:
Available cash
True profitability
Capacity to invest, hire, or distribute funds
Exposure to tax, compliance, or liquidity risk
When reports appear polished and confident, people are less likely to question the underlying assumptions. This can lead well-intentioned leaders to make significant decisions based on unchecked numbers.
A Governance Issue, Not a Back-Office Task
Balance sheet integrity is often viewed as a technical accounting task rather than a strategic priority. However, directors play a crucial role in governance by ensuring financial statements are accurate and trustworthy. This requires clear reporting lines and defined responsibilities. The finance team should provide detailed reconciliation evidence to the Board, and directors should request this evidence and challenge management on reconciliation quality. Clear responsibilities and active engagement strengthen accountability, enabling directors to fulfil their governance role and make decisions based on reliable data.
Directors and business owners rely on financial reports to:
Fulfill their duties.
Oversee risk.
Make informed decisions.
Assure stakeholders.
If the balance sheet is not reconciled, that trust is misplaced, regardless of how detailed, professional, or timely the reports appear.
The Foundation Always Comes First
Technology has made it easier to create performance reports. Data can now be quickly summarised, analysed, and presented in new formats. However, technology cannot compensate for weak foundations.
Effective performance reporting must still follow a clear sequence:
Accurate transaction processing.
Reconciled balance sheet.
Independent review.
Interpretation and insight.
Coming Next
In the next article, we’ll examine how technology and AI can either enhance financial insight or increase financial risk, depending on the discipline applied to the underlying data.
In finance, what appears correct is not always accurate.
