Thought Leadership  •  May 31, 2023

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Financial Statement Tie-Out Binders

A tie-out is a slang phrase that refers to reconciling 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?

Within the context of financial statements, a financial statement tie-out 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. The process is time intensive, but financial reporting software makes it faster and easier to complete.

Purpose and Process of Tie-Outs

Whether it's a 10-Q or another financial 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 an 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?

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 of the numbers and doing the reconciliation process we've been discussing.

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 trying to figure out what went wrong and reconcile it.

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. Discover how our signature financial reporting software streamlines this and other aspects of the required reporting process.