Journal entry approval 2546

  • Here’s a question for the group related to journal entries and segregation of duties
    Journal entries are prepared, but not posted, by staff members. Our company has a standard requirement that a member of accounting management must review and approve journal entries prior to posting. One accounting manager is responsible for accounting policy and research (accounting research manager). This individual is responsible for researching, communicating and assist in implementing new or changes to accounting standards. The accounting research manager will dictate what the journal entries should be for various accounting pronouncements and have a staff member input the values in the actual journal. The accounting research manager then approves and posts the journals.
    In some instances, the other accounting managers are brought up to speed on the accounting pronouncement, and other times this may not be the case.
    There are 4 other accounting managers who do not perform the research funtion…
    The question that I have is: Should the accounting research manager be able to review and post journal entries related to his own research and implementation? It appears that he is using the staff member as a conduit to post entries that other accounting managers may not fully understand.

  • This sounds like a huge risk if he is calculating, reviewing and posting the entries, but only delegating them to someone else for input. At a minimum, the acctg research mgr should have his supervisor review his calculations and assumptions prior to posting.
    There are two big risks here - one is that the acctg mgr wants to post a fraudulent entry; the other is that he makes a calculation or assumption error. While the first risk may be mitigated if the mgr is not responsible for reconciling accounts that he is making entries against, the second risk has no failsafe backup.
    I think that I am pretty good and very accurate, but I still make mistakes when I get in a hurry. All significant calculations / entries should be reviewed by a second party and should have appropriate support (not a memo from the acctg mgr laying out the entry).

  • Kymike,
    I couldn’t agree more. I just wanted some thoughts and opinions on the topic.

  • I do think that (and my company did so) account manager can not be able to post journal entries, as he/she is responsible for approving them. As a manager, I believe his job is to review only, not make any post (in some smaller companies, this situation can be mitigated by someone else review, but is a particular exception for owned or small companies, I think without a control environment well structured).
    But we have another situation here: our journal entries are not centralized (almost every department has a person for posting journal entries independently from the account department). We have a large numbers of JE (something larger than 100 thousand / month). How to centralize this approval? Should I create a hair-cut for approving only large entries?

  • Ricardo,
    It does make sense to segregate the large entries from the smaller ones for approval purposes given the large number of entries that you have.
    If you are not reviewing every entry, then you should have a very robust process to reconcile and review accounts to ensure that the entries are appropriate. The reconciliation reviewer should not be the JE preparer.
    You should also have good analytic reviews of your financial statements to help ensure early detection of incorrect entries that are material in size.

  • I agree. At a previous company it was based on risk. The greater the size of the journal in value, the complexity, judgement, year-end, etc the increased need for proper segregation of duties and independent checking and sign off. The lower the risk the less this was reqired and reliance was placed on:%0A1. Reasonable analytics/reconciliations to identify significant errors%0A2. A 5% quality control review by a separate individual who randomly selected 5% of unauthorised journals to confirm they were correctly calculated and posted.

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