Fraud Data Analytics Methodology

Chapter 15Fraud Data Analytics for Journal Entries

The auditing standards for journal entry testing must be the basis of selecting journal entries. An understanding of standards and the exercise of professional judgment can never be replaced. The following fraud data analytics methodology is intended to create a framework to help the auditor meet the intent of the professional standards of auditing. To assist the reader, we will start with an excerpt from the standard:

The auditor should design procedures to test the appropriateness of journal entries recorded in the general ledger and other adjustments. More specifically, SAS no. 99 requires the auditor, in all audits, to (a) obtain an understanding of the entity's financial reporting process and controls over journal entries and other adjustments; (b) identify and select journal entries and other adjustments for testing; (c) determine the timing of the testing; and (d) inquire of individuals involved in the financial reporting process about inappropriate or unusual activity relating to the processing of journal entries or other adjustments (Statement of Auditing Standard (SAS) no. 99, Consideration of Fraud in a Financial Statement Audit).

This chapter will discuss how to use the fraud scenario approach for journal entries and then provide seven different frameworks to create an overall fraud data analytics plan for journal entry testing for financial accounts. The last section will illustrate my experiences with how controllers ...