Accounting technology / Glossary / Journal entry testing

What is journal entry testing?

Definition

Journal entry testing is an audit procedure that examines journal entries and other adjustments made in preparing the financial statements, to detect fraud, especially management override of controls. Auditing standards require it on every audit: the auditor selects entries with risk characteristics, such as unusual accounts, users, timing or amounts, and tests their support.

Also calledJETjournal entry analysisJE testing

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Required by: ISA 240 / PCAOB AS 2401
Main risk: Management override of controls
Starts with: Complete journal population

How journal entry testing works

The auditor obtains the full journal entry population for the period, checks it is complete by reconciling it to the trial balance, and understands how entries are made and approved. Criteria then target higher-risk entries: those posted after period end or at weekends, by senior staff or people who do not usually post, to rarely used accounts, with round amounts, with little description, or reversing shortly after. Selected entries are traced to support and discussed with management. Under international standards the requirement is in ISA 240; for US public company audits, PCAOB AS 2401. Analytics tools apply many criteria at once and score each entry, so the selection is risk-based rather than arbitrary. MindBridge scores every entry with machine learning, and Inflo and Caseware run journal analysis inside their audit platforms.

Common questions

Why is journal entry testing required?+

Because management can override controls by posting inappropriate journal entries, a fraud risk present in every entity. Standards require auditors to test journal entries in every audit.

Which journal entries are high risk?+

Entries posted at unusual times, by unusual users, to rarely used or suspense accounts, with round numbers or vague descriptions, or made at period end and reversed soon after.

How does software help journal entry testing?+

It checks completeness against the trial balance, applies many risk criteria to every entry at once, and ranks entries so testing focuses on the riskiest.