The Public Company Accounting Oversight Board released a staff publication highlighting problems it's seeing with audits of journal entries.
The publication,
It includes reminders about understanding controls over journal entries, identifying and selecting journal entries to test, testing the completeness of the population of journal entries, and testing of journal entries.
The publication also includes some of the typical deficiencies seen by PCAOB staff, such as auditors not testing any of the journal entries that met their fraud criteria, auditors unduly limiting their procedures to certain journal entries meeting their fraud criteria, auditors not testing the completeness of the population of journal entries, and not obtaining an understanding of the financial reporting process and controls over journal entries and other adjustments. There's a PCAOB auditing standard,
"Auditors should use professional judgment in determining the nature, timing and extent of the testing of journal entries," recommends the publication.
The publication also includes some good practices observed by PCAOB staffers, including audit firms providing examples to engagement teams of characteristics of potentially fraudulent journal entries, training for all partners and firm personnel on the applicable PCAOB standard, and journal entry practice aids.
Software audit tools can also help. "To aid in testing the completeness of the journal entry population and identifying journal entries for testing, audit firms employ software audit tools," said the publication. "Those audit firms also require consultations if an engagement team does not use the software audit tool, or if the journal entries identified by the software audit tool are not all selected for testing."
