Steps to verify the accuracy of financial data

Accurate financial data is essential not only for regulatory compliance but also for making informed strategic decisions. Errors in financial records can jeopardize funding opportunities, hinder your ability to secure debt, and expose your business to tax compliance risks. Additionally, inaccurate data undermines your ability to assess performance effectively, obscuring key strengths and weaknesses.

In this article, we will outline 6 key steps to verify the accuracy of financial data. As a best practice, you should move to each subsequent step only after the previous ones have been exhausted.

Actionable steps to validate financial data accuracy

These steps progress from simple, low-cost methods to more advanced approaches that may require specialized expertise, significant time, or financial investment.

Step 1 – Finding anomalies through data visualization

Raw financial data can be extremely challenging to interpret, especially for large corporations that execute hundreds of transactions every day. Instead, you can use data visualization tools to find outliers and anomalies effortlessly.

Various software used to store and analyze financial data, such as MS Excel, Google Sheets, and QuickBooks, come equipped with data visualization tools. As you become more familiar with these tools and learn the Visual Basic for Applications (VBA) and Python programming languages, you can even build dashboards for certain repetitive data verification tasks.

However, since your purpose is to spot anomalies in financial trends, basic charting tools often suffice.

Let us explore this through an example. The following chart depicts an organization’s quarterly sales figures.

Through the column chart, we can observe that business activity typically increases in Q3 for this organization. This trend was disrupted in Q3 2024, with sales reaching their lowest point of the year. This unexpected deviation may signal potential inaccuracies or issues in the financial data for that quarter.

Step 2 – Leveraging AI and automated tools

We have been using machine learning in fraud detection for decades. The first fraud detection AI application was launched back in 1992 by FICO. After all, fraud detection involves identifying unusual behavior in large volumes of data, an area where machine learning algorithms excel. In a similar manner, machine learning applications are a natural fit for identifying inaccuracies in financial data.

Since machine learning and automation in financial data anomaly detection have been around for quite some time, you need not build and train anomaly detection models on your own. You can simply rely on tools such as MindBridge AI and AppZen.

Step 3 – Comparing cash flow records and invoices with ledger entries

If data visualization and AI tools fall short of identifying the source of inaccuracies, you may need to manually look for errors. In such cases, the best place to start would be comparing cash flow records and invoices with ledger entries. This can be achieved in MS Excel or any other spreadsheet application quite easily. Let us explore one approach to do so.

Suppose a business’s cash flow records for the month of April are recorded in an Excel spreadsheet as follows.

	A	B	C
1	Date	Description	Amount
2	1 April 2025	Opening balance	$20,000.00
3	2 April 2025	Goods purchased - Invoice no. 431	$3,200.00
4	3 April 2025	Contractor payment - March	$2,500.00
5	4 April 2025	Employee salaries - March	$8,000.00
6	5 April 2025	EMI - Equipment loan	$1,200.00
7	10 April 2025	Partial payment (25%) for reaching project milestone	$16,000.00
8	10 April 2025	Contractor payment - Urgent tasks (April 1st week)	$1,200.00
9	15 April 2025	Goods purchased - Invoice no. 432	$4,000.00
10	20 April 2025	EMI - Commercial vehicle loan	$1,000.00
11	22 April 2025	Goods purchased - Invoice no. 432	$1,800.00
12	23 April 2025	Goods purchased - Invoice no. 433	$2,500.00
13	24 April 2025	Goods purchased - Invoice no. 434	$1,000.00
14	25 April 2025	Goods purchased - Invoice no. 435	$1,200.00
15	26 April 2025	Final payment for project completion	$48,000.00
16	27 April 2025	Goods purchased - Invoice no. 436	$5,000.00
17	30 April 2025	Closing balance	$51,400.00

Your prior analysis suggests errors in the goods purchased ledger, which is recorded as follows in ‘Sheet2’ of the same Excel spreadsheet.

	A	B	C	D	E
1	Invoice no.	Date	Vendor	Description	Amount
2	431	2 April 2025	Prime Traders	Steel	$3,200.00
3	432	15 April 2025	EcoBuild	Packaging materials	$4,000.00
4	433	22 April 2025	QuickMart	Building materials	$1,800.00
5	434	23 April 2025	QuickMart	Building materials	$2,500.00
6	435	24 April 2025	QuickMart	Building materials	$800.00
7	436	25 April 2025	QuickMart	Building materials	$1,200.00
8	437	26 April 2025	Prime Traders	Steel	$5,000.00

Now, if you wish to find anomalies in these ledger entries, you can do so by simply using the VLOOKUP and IF functions.

First, in Sheet2 (ledger), you can use the VLOOKUP function to retrieve the amounts from Sheet1 (cash flow record) based on the invoice number. You must simply enter ‘=VLOOKUP(“Goods purchased – Invoice no. “&A2,Sheet1!$B$2:$C$17,2,FALSE)’ in cell F2 and double click the fill handle to achieve this.

Then, you can use the IF function to compare retrieved values and existing values. To achieve this, you must simply enter ‘=IF(E2=F2,”Accurate”,”Inaccurate”)’ in cell G2 and double click the fill handle.

Try using this method to identify which invoice was incorrectly recorded in the ledger we have prepared.

Step 4 – Comparing journals, ledgers, and financial statements

Instead of simply comparing cash flow records and invoices to ledgers, you must also check for entries that do not generate cash flow or invoice trails. Some examples of this would be expense of employee compensation, depreciation, and adjustments to prepaid expenses.

While this is an extremely time-consuming step, it can go smoothly if your financial records were maintained on a single platform with consistent formatting. Otherwise, you would spend a lot of time coming up with elaborate formulas and processes before you even get started on your core objective.

Step 5 – Rebuilding financial history

Rebuilding financial history is a technique used by forensic accountants to verify the accuracy of financial records. Given the expertise and time required, this should not be your first step. This technique should be reserved for situations where simpler methods have failed at identifying the source of serious discrepancies.

To put things into perspective, forensic accountants are hired to investigate fraud and embezzlement. If your team does not have the bandwidth or expertise to carry out this step, it is advisable to move on to the next step.

Step 6 – External audits

The final step in verifying the accuracy of financial data involves hiring reputable accounting and professional services firms to audit your records. Selecting the right auditor is an important decision, as they provide a final review to confirm the accuracy of your records.

While audit services represent a significant investment, they can assure you that your financial data meets regulatory requirements.

How to ensure accurate bookkeeping?

By adhering to Generally Accepted Accounting Principles (GAAP), you can ensure accuracy in bookkeeping, as this framework has the following bulwarks against discrepancies.

• Double-entry accounting – Every transaction is recorded with both a debit and a credit entry, ensuring the books remain balanced. This system makes it easier to detect errors, as any imbalance immediately signals a problem.
• Accrual basis accounting (Encouraged but not mandatory) – Under accrual basis accounting, transactions are recorded when they are incurred, not when cash is exchanged. This approach provides a more accurate representation of your company’s financial performance and position at any given point in time.
• Consistent application of accounting principles – By standardizing accounting principles, GAAP negates the potential for inaccuracies through differences in interpretations of various adjustments.

Eqvista – Compliance made easy!

Verifying accuracy in financial records may extend beyond simply cross-checking entries related to certain transactions. For instance, when a company’s valuation centers around its key assets, such as software or patent portfolio, knowing the market value of these assets on the reporting date is important. Similarly, when you issue stock-based compensation, you must know the present fair market value (FMV) of your company’s equity.

Eqvista’s valuation experts can help you tackle such challenges. We can help you validate the values of your key assets, file for QSBS qualification, and issue stock-based compensation in a tax-compliant manner. Contact us to learn more about our services!