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Journal Entry Testing Made Simple


IDEA Smart Analyzer Financial Simplifies Tests as Recommended in Center for Audit Quality Practice Aid for Testing Journal Entries

The Center for Audit Quality (CAQ), affiliated with the American Institute of Certified Public Accountants, issued an informative publication titled, “Practice Aid for Testing Journal Entries and Other Adjustments Pursuant to AU Section 316.” Prepared by representatives from the member firms of the CAQ, the practice aid is part of an overall effort to help audit firms and internal audit departments of public companies develop more effective methods of fraud prevention and detection.

It is intended as a reference source for those applying certain sections of AU Section 316 of the Public Company Accounting Oversight Board‟s (PCAOB) Interim Auditing Standards, Consideration of Fraud in a Financial Statement Audit. The practice aid focuses on the auditor‟s testing of journal entries and other adjustments for evidence of possible material misstatements, which may help detect fraud. The complete publication, released on Dec. 8, 2008, may be viewed at: http://www.thecaq.org/resources/index.htm.

Section 5.5 (pages 23-24) “Using CAAT for Journal Entry Testing” addresses the use of computer-assisted audit techniques (CAAT) to identify journal entries and other adjustments to be tested. IDEA® – Data Analysis Software is noted as one of the select data analysis software tools designed to evaluate large sets of financial data. The practice aid also lists a menu of CAAT queries that may be performed by data analysis software to extract journal entry data, which is then investigated to determine if they are appropriate and supported.

The CAAT queries listed in the CAQ‟s practice aid may be performed using IDEA functions. IDEA Smart Analyzer Financial, an add-on component of IDEA, offers pre-defined tests to further simplify the process as demonstrated in the table below: January 16, 2009

CAQ Recommended CAAT Queries

  • Find journal entries that do not balance Summarization
  • Find gaps in journal entry number sequence
  • Find high-dollar journal entries Equation Editor
  • Find possible duplicate account entries
  • Find round-dollar journal entries
  • Show journal entry information by employee
  • Find all entries made by a specific employee
  • Show values for the 'journal entry type' code
  • Find manual entries
  • Sample journal entries (random or high dollar)
  • Find specific journal entries (by month, day or JE#)
  • Find all entries containing specific account(s)
  • Find all entries within a range of accounts
  • Find entries with unusual (non-standard) description
  • Find entries posted on weekends

By following the recommendations as outlined in the CAQ‟s practice aid, auditors can develop a more uniform approach to search for and identify fraud.

IDEA Smart Analyzer Financial tests may be run on any client‟s general ledger data by following three simple steps: import GL data into IDEA; tag the fields so the test routines know which fields to use; select the tests to perform. This process allows the audit team to perform more efficient and effective audits with a high return on investment. Easy to use and implement, IDEA Smart Analyzer docks to IDEA's Analysis menu and comes with full online help and easy-to-follow dialog boxes, making it simple to deploy within the firm or audit department.

In addition to General Ledger Analysis, IDEA Smart Analyzer Financial offers many other audit tests and reports that can be run on accounts receivable, accounts payable, fixed assets and inventory data files using the same three-step process. Below are a few of the tests available:

Accounts Receivable

  • Accounts with Balances or Transactions Exceeding Credit Limits
  • Transactions Around a Date Range

Accounts Payable

  • Duplicate Invoices or Payments
  • Creditors with Net Debit Balance
  • Invoices Without Purchase Orders
  • Transactions with Rounded Amounts
  • Duplicate Field Search

Fixed Assets

  • Fixed Assets Additions
  • Asset Category Summary
  • Recalculations of Depreciation
  • Depreciation Exceeding Cost

Inventory

  • Aging by Receipt Date
  • Zero or Negative Unit Cost
  • Inventory Received Around a Specific Date
  • Compare Sales Price with Unit Cost

By using IDEA and IDEA Smart Analyzer Financial, auditors can perform more comprehensive audits with less effort. Furthermore, IDEA Smart Analyzer Financial can be used on every audit engagement to improve audit quality and consistency to assist in meeting today‟s audit standards, including standards related to fraud such as SAS 99.

For additional information, and to obtain product profiles for IDEA and IDEA Smart Analyzer Financial, visit www.audimation.com or call 888-641-2800. IDEA is a registered trademark of CaseWare International Inc


CaseWare IDEA , Success Story



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