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Understanding the journals system

Client Substantiation File.

Journals are used to capture transactions into an accounting system is different ways and may often have different characteristics. Journals can be:

  • used to record transactions into the accounting records;
  • used to correct errors of previous entries;
  • routine and used for transactions that occur regularly; and
  • non-routine as they are used to capture less frequently encountered transactions.

Journals by nature have higher risk associated with them as inappropriate journals can be posted to the accounting system. It is important that there are robust processes and controls around the processing of journals. There must cover who can initiate and approve journal entries. Incorrect or inappropriate journals can be used to manipulate the accounting records and will result in errors being present in the financial statements.

It is important that the auditor gets a sufficient understanding of the system over journals. A proper understanding will also allow the auditor to identify any risks areas in the journals system and which journals to focus their audit procedures.

It is also important that the auditor receives a complete list of all journals processed for the year. This is needed to ensure that all journals are considered when selecting journals to test.

We have included a journals questionnaire (Excel, 147kB) for you to complete in order for your auditor to better understand your journals system and the risks associated with it. This will help the auditor to focus their attention on which journals to test. The questionnaire may also give you an indication of any areas in your journal system that need attention.

document iconDocuments to download

Substantiation file requirements (Word, 51kB)

Substantiation file requirements (HTML)

Questionnaire (Excel, 147kB)