Enhancing Internal Controls to Prevent Fraud in Journal Entries
Posted by Jonathan Roller on February 18, 2025
In the January 2025 Audit Focus, the Public Companies Accounting Oversight Board (PCAOB) staff have identified numerous deficiencies in the examination of journal entries and other adjustments for potential material misstatements due to fraud. This edition of Audit Focus provides key reminders for auditors, highlights common deficiencies, and shares good practices observed by the PCAOB staff.
Please note that the PCAOB stated that “This document, which was published in January 2025, represents the views of PCAOB staff and not necessarily those of the Board. It is not a rule, policy, or statement of the Board.”
For public companies and business owners, we have put together how you can identify and avoid potential fraud within your operations.
1. Enhanced Internal Controls
- Strengthening Controls: Business owners need to ensure robust internal controls over journal entries to prevent fraud and errors.
- Regular Reviews: Implementing regular reviews and audits of journal entries can help detect and prevent unauthorized or inappropriate entries.
2. Increased Accountability
- Management Oversight: Oversee the financial reporting process more closely to ensure accuracy and compliance.
- Documentation: Proper documentation of all journal entries and adjustments is crucial for transparency and accountability.
3. Risk Management
- Fraud Detection: By understanding and addressing fraud risk factors, business owners can better protect their operations from fraudulent activities.
- Audit Readiness: Being prepared for audits by having well-documented and tested controls can reduce the risk of audit deficiencies.
4. Use of Technology
- IT Integration: Leveraging IT specialists and software audit tools can enhance the accuracy and completeness of journal entries.
- Automation: Automating certain aspects of the financial reporting process can improve efficiency and reduce the risk of human error.
5. Training and Education
- Staff Training: Providing training on relevant and best practices for journal entry testing can improve the overall quality of financial reporting.
- Continuous Learning: Encouraging continuous learning and staying updated on procedural guidelines to help maintain compliance and improve business operations
By focusing on these areas, business owners can enhance their financial reporting processes, reduce the risk of fraud, and ensure compliance with regulatory standards.
PCAOB Resources:
- PCAOB
- PCAOB Publications
- Standard: AS 2401: Consideration of Fraud in a Financial Statement Audit
- Audit Focus Journal Entries
- Audit Focus Journal Entries, 5-Page PDF
for more information
Jon leads audits, reviews, compilations, tax, and consulting services for manufacturers, contractors, and other commercial business entities. He serves as the audit practice leader for the Firm's manufacturing and construction niches and manages the Firm’s pre-qualification to perform third-party reviews of tax credit applications for the Film Industry according to agreed-upon procedures established and published by Empire State Development (ESD). In addition, Jon serves a variety of exempt organizations.