Over the last 10 to 15 years, the degree of automation in financial processes has advanced dramatically. And while most companies continue to strive to develop and implement even more automation into their transaction processing and financial closing and reporting processes, there is little doubt that the manual journal entry is going to continue to be a key component in the financial closing and reporting process for the foreseeable future.

This statement is based on my own admittedly non-cientific survey of leading financial personnel who are in my professional network. These people have roles such as CFO, chief internal audit executive, deputy comptroller, SOX team leader, and even partner with a national CPA firm. They work in a wide variety of industries, including manufacturing, medical products and services, telecommunications, state government, and energy, in addition to public accounting.

Since I am working on an article about risk and the manual journal entry process, I have been holding various types of discussions (phone and e-mail) with these outstanding accountants and financial professionals. One of them brought up an intriguing thought about the future importance of the manual journal entry process, given pending changes in accounting standards.

Let me put some context around this first.

My conversation with the CPA firm partner reminded me that under SAS 99 most firms (if not all) are going to consider manual journal entries to be a high-risk area of concern. That is because the vast majority of transactions that are processed routinely through ERP-type systems are less likely to be subject to being overridden. The quandary that auditors face is that the people who are most often involved in the manual journal entry process are often the ones who may (I stress MAY) have the motiviation to override any internal controls that are in place to assure the integrity of the process.

That being said … one person in this discussion contended that manual journal entries will always be a key part of the financial reporting process since GAAP requires a wide variety of accounting estimates to be made. The only way to record these estimates is with a manual journal entry.

Then he threw out this thought!

When we move to the principles-based standards of IFRS, we will be making manual journal entries that are based even more on estimates and judgements. How does that affect the risks inherent in manual journal entries?

Hmmm … thought-provoking.

Might IFRS make the manual journal entry an even more important … and riskier component of the financial reporting process?

What do you think?

Let me know your thoughts by posting a comment below. ###