Manual Journals and Management Override: What Finance Directors Should Evidence

A journal can change reported performance without changing a bank balance. That makes manual entries an important place to look when assessing the reliability of financial reporting. A journal approval stamp is only useful if somebody has actually challenged the accounting, the explanation and the supporting evidence. Management override is not eliminated because the business has an otherwise well-designed control framework.

Know how entries reach the ledger

Map the routes used to post manual entries, upload spreadsheets, amend opening balances and make consolidation adjustments. Confirm who can prepare, approve, post and alter them. Include entries made outside the normal close workflow. A control description limited to the main ERP screen can miss adjustments made in reporting workbooks or at group level.

Require a defensible journal pack

Each material or higher-risk entry should have a clear business purpose, calculation, accounting rationale and supporting documents. Record the accounts and period affected, the preparer, the reviewer and whether the entry should reverse. Descriptions such as management adjustment or year-end correction do not explain what happened. Links to evidence should remain usable after the reporting period closes.

Make review independent and substantive

The reviewer should be able to challenge both the numbers and the treatment. Evidence the questions asked and how they were resolved, especially for judgemental entries. Where senior leadership prepares an entry, route review to an appropriately independent person rather than accepting seniority as approval. In a lean business, agree proportionate oversight in advance, including how the board will be involved in exceptional cases.

Focus on unusual entries without assuming misconduct

Useful review criteria include late postings, unusual account combinations, entries outside normal working patterns, large round amounts and journals with limited descriptions. None proves fraud. They identify entries requiring explanation. Combine those signals with knowledge of the business, incentives and previous corrections rather than relying on a single automated exception report.

Preserve the population and the audit trail

Retain a complete journal listing for the period, including consolidation entries where applicable, and reconcile it to the ledger. Keep evidence of amendments, cancellations and post-close adjustments. When auditors request journal data, explain the extraction scope and show how completeness was checked. A sample of well-presented entries does not establish that the full population has been captured.

Distinguish management controls from audit procedures

Auditors have responsibilities for responding to management override, including journal testing under the applicable ISA (UK) 240. Management remains responsible for the records and controls. Do not assume that external audit testing replaces internal review. The revised ISA (UK) 240 issued in March 2026 applies to audits of periods beginning on or after 15 December 2026; the edition relevant to a particular audit depends on the period.

Test the process now

Select a recent judgemental journal and ask an independent reviewer to reconstruct it from the retained evidence. Can they explain the purpose, calculation, approval and posting without speaking to its author? If not, strengthen the documentation before year-end pressure makes the gaps harder to resolve. This article provides general control guidance, not a finding that any particular entry is fraudulent.

Source: https://www.frc.org.uk/library/standards-codes-policy/audit-assurance-and-ethics/auditing-standards/isa-uk-240/