Exception Report

Updated on May 3, 2024
Article byWallstreetmojo Team
Edited byRaisa Ali
Reviewed byDheeraj Vaidya, CFA, FRM

Exception Report Definition

Exception report refers to a statement disclosing the dissimilarity between actual and expected occurrences. A negative deviation is alarming to the management, and subsequent corrective action is necessary, whereas a positive variation is perceived as good and requires no improvement.

It is widely used by auditors, accounting professionals, and analysts. However, its application is not confined to accounts and finance; it is emerging as an important data analysis tool in project management, banking, and retailing. It ensures the smooth functioning of daily business activities. An entity can create the report using different tools like spreadsheets and other softwares.

Key Takeaways

  • An exception report refers to a document highlighting the deviation of planned data from actual data.
  • A negative deviation notifies the management to take corrective actions to eliminate the abnormal occurrences and attain overall efficiency in the business operations.
  • It is possible to customize the exception document to monitor various business units separately or use it in conjunction with other documents for effective management.
  • Examples include Revenue and Expense Exception Document for controlling budget to Timesheet Exception Report for attendance management.

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Exception Report Explanation

Exception reports primary purpose is to represent the abnormal occurrences by disclosing absolute variations and percentage variations. This data drive management to conduct investigations. Subsequently, it helps managers to make decisions based on deviations from predefined data. It can enhance management’s productivity by focusing on the most critical aspect of performance information.

Exception Report Definition

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As organizations become increasingly complex, managers often become overwhelmed by the magnitude and the sheer volume of data they need to sieve through and process daily to make sense of their business activities. Often, metrics and figures may need to be taken together rather than viewed on a standalone basis to provide context and reduce ambiguity in daily reporting. Other times it is required to isolate certain figures to filter out the noise before deriving actionable insights. The use of an exception reporting system eases managing a complex organization.

Exception reporting systems supporting organizational decision-making activities can deliver automated statements and an assortment of useful exception documents. In the case of project management, they provide all levels of management with current information about various aspects of project performance in a timely and meaningful manner. In addition, various exception documents provide standardized and guided reporting and variance analysis capabilities, both independently and collectively. A digital model is used to illustrate these reports and their underlying principles.

The purpose of such reports is to enable managers to identify critical control areas, prioritize their time and improve their effectiveness. Ideally, a good exception system would capture various operational and financial risk metrics by categories and business divisions of the company and alert executives to the business areas that may need some attention. Once a red flag or an alert has been generated, the management can then make changes or stop certain activities to account for any situational or environmental changes and bring the business back to normal as soon as possible.

Incomplete input or information can also be flagged via exception notification. For instance, if a user account in a bank is missing address information, this might lead to late services, undeliverable bills, and ultimately delay in payment processing. In logistics, incomplete or inaccurate postal codes are frequently fined by shipping firms, which can add up to considerable expenditures if the mistake happens on a massive scale.

Exception Report Example

There are different exception report examples spanning from Revenue and Expense Exception Report for controlling budget to Timesheet Exception Report for attendance management. It performs the function of identifying the difference between data received and planned set of data. Let us focus on the exception statement for inventory management.

Inventory management is a key component in well-functioning entities like retail stores and manufacturing houses. Any variation in inventory levels can substantially impact the production process and the supply and sale of items. The deviation between actual inventory count and count on digital records can be due to different reasons like spoilage and human error.

Inventory exception statements help identify discrepancies in inventory data, and a sales exception statement discloses a sudden increase or decrease in sales for certain merchandise in a retail firm. It might then prompt management to investigate the matter and determine the causes. Similarly, any abrupt disruption in the supply of a certain part might warn a manufacturing company of a possible problem. The generation of frequent exception statements regarding inventory and sales will help businesses balance manufacturing rates and inventory levels with sales volumes.

In a nutshell, an exception record is an example of a data analysis process that highlights transactions where incoming data or actual data differ significantly from the anticipated data. The follow-up action based on the report helps management address problems to eliminate anomalies and gain insights to utilize opportunities better. When the volume of data within an organization is relatively small, such exceptions are easier to spot and manage than large organizations with huge data.

Frequently Asked Questions (FAQs)

What is an exception report?

An exception report meaning indicates it as a statement recording the actual data of required events and expected data. Presentation of actual and expected data helps in analyzing the occurrence of variances. The deviation can be positive or negative, alerting the management to take necessary actions to restrict the variation to an acceptable range.

What is an example of an exception report?

One of the examples is the Revenue and Expense Exception Document. The report list expense and revenue details for a specific period. The report projects actual values, budgeted or planned values of various expenses, and revenues during a specified time. Then it indicates the variance details depicting the difference between actual and budgeted values.

What is an exception report in banking?

In banking, the report tracks exceptions pertaining to different aspects. For instance, it can track missing files, expired documents, follow loans. Exception management in banks helps maintain good customer service and compliance with legislation.

This has been a guide to what is an exception report and its meaning. Here we discuss an example of an exception report with a detailed explanation. You may learn more about financing from the following articles –