How do you perform journal entry testing to address the risk of management override?

What the interviewer wants to hear

• Obtains the full journal population and checks completeness
• Understands the posting process and who can post
• Uses risk criteria to filter entries
• Tests selected entries to support and approval
• Includes period-end and post-closing entries

Model answer

I start by getting the complete general ledger journal data for the year and reconciling it to the trial balance, so I know nothing is missing. I then understand how entries are made: which are system-generated, who can post manual journals, and whether there is review or approval. Using data analytics, I filter entries against risk criteria, such as manual entries to revenue, cash or reserves, entries made by senior staff or unusual users, entries on weekends or after the closing date, round amounts, entries with no narration, and unusual account pairs like debit receivables and credit cash. I pay special attention to entries near year end and adjustments made after the trial balance. For the selected entries, I check the supporting documents, the business reason and approval. Under SA 240 this test is required in every audit because management override cannot be ruled out.

More medium Auditor questions

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• What do you communicate to the audit committee during and at the end of an audit?