CPA Exam — AUDPerforming Further Procedures and Obtaining EvidenceMedium
An auditor is planning to use audit data analytics (ADA) to identify unusual journal entries for potential management override of controls. Which of the following characteristics of journal entries would be most indicative of a higher risk of management override?
- AEntries posted by individuals outside the accounting department.
- BEntries posted at the beginning of the accounting period.
- CEntries posted to unusual accounts, especially near year-end.
- DEntries with large debit and credit amounts that balance perfectly.
Show answer & explanationAnswer & explanation
Correct answer: C. Entries posted to unusual accounts, especially near year-end.
Management override often involves manipulating financial statements, and posting entries to unusual accounts (e.g., suspense accounts, rarely used accounts) or making entries close to year-end (to impact financial results) are common patterns that ADA can effectively detect as high-risk indicators.
Why the other options are wrong
- A. While these entries warrant scrutiny, 'unusual accounts' or 'near year-end' are more specific indicators of override, as non-accounting personnel might post legitimate entries in some systems.
- B. Entries posted at the beginning of the period are generally routine and less indicative of year-end manipulation or override compared to entries made later.
- D. Large, perfectly balancing entries are normal in accounting. The *content* and *timing* (e.g., unusual accounts, year-end) are more critical than the balance itself.
ADA for Management Override (Journal Entries)
Audit Data Analytics (ADA) can identify journal entries with characteristics indicative of management override, such as unusual accounts, non-standard users, or entries near year-end.
- Override bypasses internal controls.
- Journal entries are a common vehicle for override.
- ADA helps identify patterns and anomalies quickly.
Memory trick: Unusual Accounts + Year-End = Override Suspect.