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Branch accounting is the use of several different accounting offices to handle the recording, reporting and managing of a company’s financial information. Each accounting system is separate and independent of each other within a larger organization. The home office of the large entity will typically have an account or section of the main general accounting ledger that shows the financial information from each branch. The account in the main ledger will usually have a descriptive name that indicates which branch’s information is in the account.
Many large organizations — or publicly held companies — use some form of branch accounting in their operations. This helps the company manage financial information without actually having a major physical presence in the branch locations. Branch accounting will often need an accounting manager or supervisor to oversee the operations. This person is then responsible for updating information and completing ad hoc projects from the home office. A benefit for this type of accounting office organization is the ability to avoid having a controller or chief financial officer at each location. These positions will often carry high salaries, increasing the operating expenses of the company.
Most branch accounting offices use a smaller version of the home office’s general accounting ledger. The organization’s main chief financial officer and chief operations officer will collaborate and create the rules for the accounting office’s operational workflow. This ensures the branch accounting office can accurately record all necessary financial information. Branch locations often have the problem of divisions and departments that are less willing to work together when accomplishing the company’s overall goals. The reason this happens comes from the branch office being located so far from the main executives of the company. Managers may be less willing to work together if they do not fear reprisal from their superiors.
Audits are a primary tool used to maintain the integrity of a company’s branch accounting offices or offices. The home office will send out internal auditors who will review the accounting operations to ensure they are effective, accurate and timely in recording and reporting information. Depending on the reliability of the office’s past audits, the frequency of future reviews can be quite often if too many past incidences of poor accounting practices were discovered. The auditors form the home office will also ensure the branch office accountants are following the company’s internal accounting policy. These rules often coincide with or expand the current national accounting standards the company uses to record and report financial information.
Sometimes a company can get a comfort letter to provide clients from an accountant or accountant firm. This is a letter that declares the company has no indications of misleading information in their financial records.
These letters are issued to help comfort a buyer as to the company's willingness to perform its duty.
A comfort letter can be issued if a company is unable to guarantee a certain outcome, such as the performance of a security.