Auditing Standard ASA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report (October 2025)
Additional Considerations that May InforAdditional Considerations that May Inform the Auditor When Selecting Journal Entries and Other Adjustments for Testing
Start here
Get a plain-English read of Additional Considerations that May Infor
Turn the raw legal text into a practical explanation grounded in Auditing Standard ASA 240 The Auditor's Responsibilities Relating to Fraud in an Audit of a Financial Report (October 2025).
Additional Considerations that May Inform the Auditor When Selecting Journal Entries and Other Adjustments for Testing
The following considerations are of relevance when selecting journal entries and other adjustments for testing:
Understanding of the entity’s information system and communication relevant to the preparation of the financial report[93] (see also paragraph 35 of this ASA) – obtaining this required understanding provides the auditor with knowledge about:
o The entity’s policies and procedures regarding (including the individuals within the entity responsible for) how transactions are initiated, recorded, processed, corrected as necessary, incorporated in the general ledger, and reported in the financial report.
o The types of journal entries (whether standard or non-standard) incorporated in the general ledger and, in turn, reported in the financial report, including other adjustments made directly to the financial report.
o The process of how journal entries and other adjustments are recorded or made (whether automated or manual) as well as the supporting documentation required, based on the entity’s policies and procedures.
o The entity’s financial report closing process.
Understanding of the entity’s controls designed to prevent or detect fraud over journal entries[94] (see also paragraph 36 of this ASA) – for many entities, routine processing of transactions involves a combination of manual and automated controls. Similarly, the processing of journal entries and other adjustments may involve both manual and automated controls across one or multiple IT systems. Where IT is used in the financial reporting process, journal entries and other adjustments may exist only in electronic form.
o The types of controls designed to prevent or detect fraud over journal entries may include authorisations and approvals, reconciliations, verifications (such as edit and validation checks or automated calculations), segregation of duties, and physical or logical controls.
o The requirement in paragraph 36 covers controls over journal entries that address a risk(s) of material misstatement due to fraud at the assertion level, and that could be susceptible to unauthorised or inappropriate intervention or manipulation. These controls include:
Controls over non-standard journal entries — where the journal entries are automated or manual and are used to record non-recurring, unusual transactions or adjustments.
Controls over standard journal entries — where the journal entries are automated or manual and are susceptible to unauthorised or inappropriate intervention or manipulation.
The effectiveness of controls that have been implemented over journal entries and other adjustments— effective controls over the preparation and posting of journal entries and other adjustments may reduce the extent of substantive testing necessary, provided that the auditor has tested the operating effectiveness of the controls.