Journal Entry Testing as a Service (JETaaS)

Journal Entry Testing: Data Analysis

Data Analysis in Audits

The so-called Journal Entry Testing (JET) should be part of every annual audit. Both the international auditing standards (ISA) and the pronouncements of the German profession (IDW PS) on the proper performance of annual audits provide for the use of data analyses (in particular journal entry testing) as a targeted auditing action to obtain sufficient and appropriate audit evidence at various points.

Without a corresponding journal entry testing, the professional requirements for an adequate examination and documentation of an audit can often not be achieved.

Relevant audit standards relating to data analyses
It should be emphasized that journal entry testing is performed in the auditor’s “response” to the following significant risks assumed by the auditing standards:

  • Risk of material misstatement due to sales realization violations (IDW PS 210, Tz. 39; ISA 240.26)
  • Possibility for management to override controls („Management-Override“) (ISA 240.31; IDW PS 210, Tz. 43)
  • Significant transactions with related parties that take place outside the normal course of business (ISA 550.18 i.V.m. 23; IDW PS 255, Tz. 20a).
  • Risks of material misrepresentations due to violations (ISA 240.27; IDW PS 210, Tz. 38)
  • Consideration of Fraud in a Financial Statement Audit (SAS 99, Statement on Auditing Standards No. 99)

Deviating from the ISA, due to the statutory provisions on the audit of the annual financial statements (in particular § 317 HGB), other original audit-relevant components of the internal control system and the execution of corresponding audit procedures in relation to the IT-based accounting (system audit) must be taken into account (IDW PS 261, Tz. 35-36, IDW PS 300, IDW PH 9.330.2).

Our Journal Entry Testing Service for Your Annual Audits

It is important to consider the use of Journal Entry Testing already in the planning phase of the annual audit. Since we understand ourselves as an interdisciplinary team consisting of accountants and data analysts, we can support you in the planning phase of your annual audit.

Technical Know How various systems
We have successfully completed Journal Entry Testings with a variety of systems
Comprehensive, field-tested analyzes
The analyzes were applied to more than 300 Journal Entry Testings
Fast processing
Thanks to automated processing, the results of the Journal Entry Testing are available in 1-3 days
Fixed price
We offer you a fixed price based on the scope of the necessary data analyses and the budget for your annual audit.

Diverse analyzes: standard-compliant and field-tested

In practice, numerous analyses based on accounting data have been established for annual audits, which are often summarised under the term “Journal Entry Testing (JET)”. The analyses most frequently described in the audit standards, which have also proven themselves on the basis of our many years of experience, are fully implemented in our software solution for direct applicability.

Overview of implemented analyses (indicators)
AnalysisShort DescriptionExample
Overviews
Overview of Multiple Conspicuous DocumentsList of all documents/ postings from the audit period that was identified as conspicuous by several analyzes
Accounts OverviewListing of all accounts booked during the audit period including the number of line items and the booking volume
User OverviewList of all UserIDs with which bookings were made during the audit period, including the number of line items and the posting volumeJournal Entry Testing Ergebnisse: User-Übersicht
User with few postingsList of document items for UserIDs that posted little in the period under review
Documents für selected UserIDsList of document items posted by selected UserIDs in the audit period (for example, IT employees, collective accounts)
Overview of Document TypesList of all document types with which postings were made during the audit period, including the number of line items and the posting volumeJournal Entry Testing Ergebnisse: Übersicht Belegarten
Segregation of Duties
Posted document types per UserList of document types used by each user
Posted accounts per UserList of the accounts posted to for each user, including the aggregated number of postings and the debit and credit amountsJournal Entry Testing Ergebnisse: Funktionstrennung: Kontenbereiche je User
Unusual Postings
Posting HistoryAggregated values of the posting volume and the number of posted line items per dayJournal Entry Testing Ergebnisse: Ungewöhnliche Buchungen: Buchungen im Zeitverlauf
Large AmountsList of posting items with the largest amountsJournal Entry Testing Ergebnisse: Ungewöhnliche Buchungen: Größte Beträge
Round AmountsList of posting items with round amountsJournal Entry Testing Ergebnisse: Ungewöhnliche Buchungen: Glatte Beträge
Postings on Weekend/ HolidaysList of all line items that were recorded on weekends (Sat, Sun) or holidays (based on the entry date)Journal Entry Testing Ergebnisse: Buchungen am Wochenende
Critical document textsList of all documents containing critical words in the document texts
Benford AnalysisOverview of the frequency of leading digits in the amounts compared to the frequencies expected according to the Benford distribution
Postings for conspicuous Benforder amountsList of all line items that contain leading digits for the amounts that were identified as conspicuous in the Benford analysis
Generally Accepted Accounting Principles
Reconciliation of debit and credit per documentList of all documents for which the total of the debit and credit amounts are not identicalUngewöhnliche Buchungen: Abstimmung Soll und Haben je Beleg
Timely Recording (I)List of line items with large differences between the posting date and the document date
Timely Recording (II)List of line items with large differences between the posting date and the entry date
Cut Off (I)List of line items with a posting date in the fiscal year and a document date after the end of the fiscal year
Cut Off (II)List of line items with a posting date in the fiscal year and an entry date after the end of the fiscal year

Quality and Efficiency through Journal Entry Testing

Due to the progressive use of IT systems in companies, the amount of audit-relevant data is constantly increasing. Business transactions are increasingly recorded and processed exclusively electronically. Here, Journal Entry Testing can help to increase the scope and depth of detail of audit activities in the annual audit without increasing the complexity of the audit.

Fields of application of Journal Entry Testing in annual audits

The term data analysis in the context of the annual audit (in particular Journal Entry Testing) describes the targeted and IT-supported selection, preparation and evaluation of accounting-relevant data in order to obtain appropriate audit evidence (IDW PH 9.330.3). As auditors, they enable you to carry out audit procedures effectively and efficiently on the basis of the risk-oriented audit approach. Data analysis can be used throughout the whole audit process.

  • Identification of error risks and irregularities (e.g. identification of unusual postings with regard to entry date/time and persons, offsetting account analysis)
  • Assessment of the control environment and the effectiveness of implemented controls (e.g. amounts double-recorded, bookings by persons outside your competencies)
  • Statement-based audit procedures and case-by-case reviews at transactional, account, and financial statement level (e.g., monthly revenue per unit)

Our Approach for Your Journal Entry Testing

However, the hurdles to conducting data analysis are high. Not all audit firms have the technical know-how (data export, preparation of the data) and the time to carry out comprehensive data analyzes. This is where our automated analysis approach helps. You do not have to deal with the technical details. You get the results in an Excel-based format that makes it easy for you to further process and document the results in your audit process. So you can concentrate on audit steps.

Our approach takes into account the requirements of the Institute for Auditors (IDW) for the use of data analysis in annual audits (IDW PH 9.330.3). We can cover a wide range of financial accounting and ERP systems.

Journal Entry Testing: Diagramm Vorgehensmodell
Detailed description of our approach for Journal Entry Testing

1) Target definition of the Journal Entry Testing

Audit standard-compliant scope of analyses (indicators): With our standard set of indicators implemented in our Journal Entry Testing Software we cover the most common analyzes on the basis of the booking journal, which are described in the corresponding audit standards (IDW PS 210, ISA 240, SAS 99, IDW PH 9.330.3) .

Individual analyses: In addition, we can extend the set of indicators of your Journal Entry Testing by further analyses, taking your audit approach into account, in order to specifically address particular error risks of your clients.

Information we need: Audit period, scope of accounts (analysis of all accounts or analysis of selected accounts), materiality, preliminary risk evaluation for individual analyses.

2) Data acquisition for the Journal Entry Testing

We coordinate the data export with you and/or directly with your client on the basis of the objectives set. No special technical knowledge from your side is necessary here. Your client’s data is encrypted and transferred to our IT infrastructure. Once the data has been imported, we reconcile the data with the balance sheet/ income statement in order to ensure the completeness and integrity of the data provided.

Information we need: If necessary, contact person at client, balance sheet/ income statement for reconciling the dataset.

3) Execution of the Journal Entry Testing

We perform the analyses on our IT system. Of course, the system meets the high IT security requirements of an auditing company. Our automated processing chain enables us to prepare the analyses, as a rule, within one working day after receiving the data.

4) Interpretation and Documentation of the Results

You will receive from us a brief summary as well as detailed individual analyses in a format (e.g. Excel) with which you can plan and carry out further audit procedures directly. For each individual analysis, we provide you with a detailed interpretation of anomalies as well as recommendations for further audit steps. This enables you to integrate the results directly into your working papers. By means of references (e.g. document number) you can reproduce the individual facts directly in the client’s system.

In addition to the analysis results, a documentation of the analysis execution (execution of the data export, adjustments of the data export/conversions carried out, evaluations carried out incl. assumptions and tolerance limits) is provided in order to meet the requirements for the documentation of data analyses within the framework of the annual audit (IDW PH 9.330.3 TZ 78 ff.). In addition, we provide you with all the necessary information that you need for the involvement of an expert third party (IDW PS 332).

Contact us for Your Journal Entry Testing

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