Review controls are reviews conducted by management to assess the reasonableness and accuracy of financial information, estimates, reconciliations, and other relevant documents. Their primary purpose is to ensure the integrity and reliability of financial information, serving as a last line of defense to identify discrepancies, errors, or potential risks before finalizing financial documents.
Key Facts
- Definition: Review controls refer to the reviews conducted by management to assess the reasonableness and accuracy of financial information, estimates, reconciliations, and other relevant documents.
- Purpose: The primary purpose of review controls is to ensure the integrity and reliability of financial information. They serve as a last line of defense to identify discrepancies, errors, or potential risks before finalizing financial documents.
- Types of Review Controls: Review controls can cover a wide range of financial documents and processes, including:
- Reconciliation reviews: Reviewing the accuracy and completeness of reconciliations between different financial accounts or records.
- Journal entry reviews: Assessing the appropriateness and accuracy of journal entries made in the financial records.
- Triggering event reviews: Evaluating events or circumstances that may require specific actions or adjustments in financial reporting.
- Estimate support reviews: Reviewing the underlying data, assumptions, and methodologies used to develop financial estimates.
- Budget-to-actual variances reviews: Analyzing the differences between budgeted and actual financial performance.
- Importance: Review controls are critical to maintaining an effective control environment. They help ensure the accuracy, completeness, and reliability of financial information, which is essential for making informed business decisions and meeting regulatory requirements.
- Challenges: Auditing review controls can be challenging due to their subjective nature and the need for experienced individuals to perform the analysis. Auditors often require sufficient documentation to demonstrate what reviewers did during the review process and how they resolved any issues. Precision, clarity, and appropriate procedures are key considerations in auditing review controls.
Types of Review Controls
Review controls can cover a wide range of financial documents and processes, including:
- Reconciliation reviews: Reviewing the accuracy and completeness of reconciliations between different financial accounts or records.
- Journal entry reviews: Assessing the appropriateness and accuracy of journal entries made in the financial records.
- Triggering event reviews: Evaluating events or circumstances that may require specific actions or adjustments in financial reporting.
- Estimate support reviews: Reviewing the underlying data, assumptions, and methodologies used to develop financial estimates.
- Budget-to-actual variances reviews: Analyzing the differences between budgeted and actual financial performance.
Importance of Review Controls
Review controls are critical to maintaining an effective control environment. They help ensure the accuracy, completeness, and reliability of financial information, which is essential for making informed business decisions and meeting regulatory requirements.
Challenges in Auditing Review Controls
Auditing review controls can be challenging due to their subjective nature and the need for experienced individuals to perform the analysis. Auditors often require sufficient documentation to demonstrate what reviewers did during the review process and how they resolved any issues. Precision, clarity, and appropriate procedures are key considerations in auditing review controls.
References:
- Refocus your management review control lens: Improve your ICFR program by resolving common challenges. (2018, July). Deloitte. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/finance/us-rfa-refocus-your-management-review-control-lens.pdf
- The Management Review Controls (MRC) Dilemma. (2017, August 6). AuditBoard. https://www.auditboard.com/blog/the-management-review-control-dilemma/
- PCAOB Staff Guidance: Auditing Management Review Controls (Section 400). (2013, October 24). PCAOB. https://pcaobus.org/oversight/rules-and-standards/staff-guidance/Pages/staff_guidance_400_11_pa11.aspx
FAQs
What are review controls?
Review controls are reviews conducted by management to assess the reasonableness and accuracy of financial information, estimates, reconciliations, and other relevant documents. Their primary purpose is to ensure the integrity and reliability of financial information.
What are the different types of review controls?
Review controls can cover a wide range of financial documents and processes, including reconciliation reviews, journal entry reviews, triggering event reviews, estimate support reviews, and budget-to-actual variances reviews.
Why are review controls important?
Review controls are critical to maintaining an effective control environment. They help ensure the accuracy, completeness, and reliability of financial information, which is essential for making informed business decisions and meeting regulatory requirements.
What are the challenges in auditing review controls?
Auditing review controls can be challenging due to their subjective nature and the need for experienced individuals to perform the analysis. Auditors often require sufficient documentation to demonstrate what reviewers did during the review process and how they resolved any issues. Precision, clarity, and appropriate procedures are key considerations in auditing review controls.
How can review controls be improved?
Review controls can be improved by focusing on preventative measures, such as building out more automated processes or implementing more precise procedures. Additionally, providing reviewers with sufficient training and resources can enhance the effectiveness of review controls.
What are some common findings related to review controls?
Common findings related to review controls include a lack of precision in defining the review process, insufficient documentation, and inadequate procedures for identifying and resolving outliers.
What are the consequences of inadequate review controls?
Inadequate review controls can lead to errors and misstatements in financial reporting, which can have serious consequences for companies, including financial losses, reputational damage, and regulatory penalties.
What are the best practices for implementing effective review controls?
Best practices for implementing effective review controls include establishing clear objectives and responsibilities, providing adequate training and resources to reviewers, documenting the review process, and conducting regular monitoring and evaluation.