In our series on the Record to Report (R2R) process, we examine three main components: close checklist, reconciliations, and journal entries. This third article in the series is focused on the journal entry.
Embedding internal controls throughout your entire R2R process is key regardless of public or non-public organizational status. Organizations should be able to create internal control tasks and monitor the performance and completion of them to help ensure their financial statement quality and accuracy while reducing risks. Organizations should design their internal controls to reimagine their control environment, centralize redundant controls, and eliminate irrelevant controls.
This article focuses on the common challenges and red flags seen in journal entry processes and the best practices that can be utilized to help address potential issues and mitigate risk.
Red Flag Conditions Driving Risks – Journal Entry
The journal entry process is one of the most critical parts of an organization’s financial reporting outcome.
When an organization manages thousands of journal entries a month, the process can quickly become tedious, risk-filled, and complex. A manual journal entry process poses risks for organizations because it lacks controls and proper approvals, and management can’t see outstanding or rejected journals.
Best Practices & Controls – Journal Entry
To address the risks discussed above, retailers should consider improving the journal entry process through standardization and, eventually, automation as a best practice. Other best practices include:
- Journal Entry Policy – Draft and finalize a journal entry policy that outlines the procedures and requirements for creating, processing, approving, and recording journal entries in an organization.
- Standardized Journal Entry Templates – Most journal entries will be similar, so standardizing templates will help ensure consistent journal entries; templates should align with journal entry policy.
- Automate Approval Workflows – Use financial tools to enforce pre-created policies and procedures and segregation of duties.
Example of an Improved Journal Entry Environment Using Cadency by Trintech
Fortunately, there are tools that can assist with standardizing and automating this process. Organizations employ tools such as Cadency by Trintech to automate their journal entry process through operational efficiencies, enhanced visibility, mitigation of risk, and reduced time spent collecting support for auditors. Such tools can provide:
- Global journal entry policy that standardizes approvals and process.
- Small number of standardized templates for use by all entities per enterprise resource planning (ERP).
- Visibility into the status of journal entries throughout the process and for auditors.
- Automated approval routing based on established criteria, such as Company Code, GL Account, or amount thresholds.
About Us
Forvis Mazars is recognized by Trintech as a strategic alliance partner. We work with Trintech to deliver services to help standardize and centralize financial reporting processes while driving greater transparency and automation initiatives. Our CFO & Business Consulting team stands ready to help your company solve its complex business problems. If you have questions or need assistance, please reach out to a professional at Forvis Mazars.
Additional Articles
For more insights on the R2R process, see the other articles in our series on the close checklist and reconciliations.