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Quick answer: A journal entry control deficiency is a weakness in how manual journals are approved, accessed, reviewed or documented, which means a misstatement might not be prevented or detected on time. To remediate it, classify the severity, identify the root cause, put interim compensating controls in place, redesign the control, let it operate long enough to produce evidence, and support the auditor’s retest.
An audit finding involving manual journal entries, often reported as a journal entry control deficiency, requires finance teams to assess the control failure, determine its severity and establish a remediation plan. Depending on the classification, the finding may also require formal communication to the audit committee and disclosure in the organisation’s internal control over financial reporting (ICFR) reports.
The controller’s task is to remediate the journal entry control deficiency and demonstrate that the corrected control is operating effectively before the relevant assessment date.
Ideagen’s SOX 404 twenty-year review reports that repeat adverse reports made up 76% of all adverse management reports in fiscal 2025, the highest share in the series. Although this figure covers ICFR reporting generally rather than journal controls specifically, it illustrates how difficult sustained material weakness remediation can be.
This guide outlines the practical steps from identifying and classifying the deficiency to implementing corrective controls, preparing evidence and supporting the auditor’s retest.
See how Promenta keeps journal preparation, validation, approval and audit evidence inside SAP.
Journal entry control deficiency remediation in six steps:
- Classify the deficiency (design or operating; deficiency, significant deficiency or material weakness)
- Confirm the root cause and scope
- Put interim compensating controls in place
- Redesign the control
- Operate and test the redesigned control
- Assemble evidence for the auditor’s retest
Common Journal Entry Control Deficiencies Auditors Flag
Under PCAOB AS 2201, a control deficiency exists when the design or operation of a control does not allow management or employees to prevent or detect misstatements on a timely basis. For manual journals, this usually involves approval, access, review or documentation.
The risk of manual journal entries is high because they can affect multiple general ledger accounts and financial statement assertions, making weaknesses in approval, access and review controls particularly relevant to an ICFR assessment. PCAOB AS 2201 identifies controls over period-end journal entries among those auditors consider when assessing fraud risk, which is why SOX controls for manual journal entries receive close audit attention.
A manual journal entry audit finding may relate to one or more of the following deficiencies :
- Approval missing, or evidenced only after the journal posted
- The same person prepared and approved the journal, breaking segregation of duties
- Posting access wider than the user’s role requires
- Review sign-offs with no record of what the reviewer checked
- Supporting documentation missing or stored away from the journal
- Journals posted outside the reviewed process, leaving the reviewed population incomplete
SAP ECC mainstream support ends 2027. See how Promenta keeps journal control inside SAP through the transition.
Design Deficiency vs Operating Deficiency: Which One Is It?
Once auditors have flagged manual journal entries, the finance team needs to establish whether the finding relates to the design of the control or how it operates.
Under Appendix A, paragraph .A3 of PCAOB AS 2201, these are two distinct types of control deficiency:
Internal SAP Basis and IT effort falls to four teams, each with a defined scope.
- Design deficiency: A necessary control is missing, or an existing control would not meet its objective even if performed as designed.
- Operating deficiency: A properly designed control does not operate as intended, or the person performing it lacks the necessary authority or competence.
A design deficiency may require a new control or changes to the existing control’s structure. An operating deficiency may call for clearer responsibilities, training, supervision or stronger enforcement of established procedures.
Management should also determine whether the failure was isolated or reflects a wider problem across journal types, users or reporting periods. This assessment provides the basis for defining the remediation scope.
Significant Deficiency vs Material Weakness: How Is the Finding Classified?
For organisations subject to US SOX and PCAOB requirements, the severity of an ICFR deficiency determines how it must be evaluated, communicated and, where applicable, disclosed, and it sets the scope of the SOX remediation effort.
PCAOB AS 2201 distinguishes between control deficiencies, significant deficiencies and material weaknesses according to their severity. Appendix A, paragraphs .A3, .A7 and .A11, provides the relevant definitions.
Under AS 2201, paragraphs .62 to .64, severity is evaluated using two factors: the reasonable possibility of a misstatement occurring and the magnitude of the potential misstatement. An actual misstatement does not have to have occurred for a material weakness to exist.
Journal controls carry a particular aggregation risk. AS 2201 paragraph .65 explains that multiple deficiencies affecting the same account, disclosure, assertion or component of internal control may collectively constitute a material weakness, even if they are less severe individually.
AS 2201 paragraph .69 also identifies four indicators of a material weakness :
- Fraud on the part of senior management, whether or not material
- Restatement of previously issued financial statements to correct a material misstatement
- A material misstatement found by the auditor that the company’s controls would not have detected
- Ineffective audit committee oversight of external financial reporting and ICFR
When does a journal entry control weakness become a reportable deficiency?
Significant deficiencies require written communication to the audit committee, while material weaknesses also carry public disclosure obligations for applicable SEC registrants. Lesser control deficiencies are communicated to management.
Management assesses the severity of identified deficiencies, while the auditor independently evaluates whether that assessment is supported by the evidence.
What Should a Journal Entry Remediation Plan Include?
A credible journal entry remediation plan should identify the underlying cause, define corrective actions and establish how their effectiveness will be assessed. Whether it is a material weakness remediation plan or a plan for a less severe deficiency requiring corrective action, it should address six elements.
- Root cause statement : Explain why the control failed, distinguishing between design and operation. Identify whether the underlying issue involves inadequate procedures, unclear ownership, insufficient competence, ineffective supervision or inappropriate system access.
- Scope : Define the journal types, entities, users and periods affected. Consider whether similar controls elsewhere in the organisation share the same weakness, and whether earlier reporting periods require further investigation.
- Redesigned control : Set out the control owner, how often the control runs, the precision of any review and the evidence the control produces each time it operates. The redesign should directly address the identified cause.
- Interim measures : Document the temporary controls that will manage the identified risk while the redesign is implemented and tested. These measures should have defined responsibilities, review criteria and supporting evidence.
- Timeline and test points : Establish the implementation date, the period needed to demonstrate operation and the planned management testing. Discuss the expected audit evidence and testing approach with the external auditor while retaining management responsibility for the design and implementation.
- Governance : Name an accountable owner, define how remediation progress and unresolved risks will be reported to the appropriate management and oversight bodies, and maintain the disclosures required for any reported material weakness.
Management should therefore document both the corrective action and the criteria it will use to conclude that the control is operating effectively.
Which Interim Compensating Controls Work During Remediation?
A redesigned control needs time to operate before it can be tested, and the identified risk must be managed during that period.
Compensating controls may help mitigate the risk while permanent remediation is implemented. Under PCAOB AS 2201, paragraph .68, a compensating control can have a mitigating effect only when it operates at a level of precision capable of preventing or detecting a misstatement that could be material.
For journal entry deficiencies, an interim management review control may be appropriate, depending on the risk and the original control failure.
PCAOB Staff Audit Practice Alert No. 11 provides guidance on the testing of management review controls. Three considerations are particularly important :
- Defined precision: The review must specify what is examined, which exceptions require investigation and the criteria used to determine whether further action is necessary.
- Complete and accurate information: The journal population or report used in the review must be sufficiently reliable for the control’s purpose.
- Evidence of the review: Records should show what the reviewer examined, which exceptions were investigated, the conclusions reached and any corrective action taken.
Typical interim measures for journals include :
- Independent retrospective review of posted manual journals above a defined threshold or meeting specified risk criteria
- Temporary restriction of posting access to a smaller group of authorised users
- Targeted review of journals posted by users with elevated access
The effectiveness of these measures depends on their scope, frequency and precision. For example, a review limited to high-value journals may not address a weakness involving repeated lower-value postings or inappropriate user access.
These additional reviews may increase the workload during period-end close. Their scope and effectiveness should be reassessed as permanent controls are introduced.
How to Redesign Journal Controls So the Fix Holds
The appropriate redesign depends on the deficiency identified, the organisation’s existing controls and the extent to which those controls can be consistently enforced.
Manual controls can be effective when they are properly designed, performed and evidenced. System-enforced controls offer another approach, particularly where the deficiency involves approval bypasses, inconsistent execution or excessive posting access.
The following table illustrates how different remediation approaches may address common journal control deficiencies.
These approaches are illustrative, and their effectiveness depends on the organisation’s control environment.
AS 2201 paragraph .47 identifies automation as a factor that can reduce control risk when the relevant IT general controls are effective.
Automated controls still require appropriate testing. Depending on the configuration, this may include evidence of approval rules, access restrictions, change management and the IT controls supporting the application. The testing approach should be discussed with the auditor as part of the remediation planning process.
How Promenta Supports System-Enforced Journal Controls in SAP
For SAP finance teams, Promenta’s SAP Journal Entry Management solution can form part of a remediation plan where the identified deficiencies call for stronger system-enforced controls.
Promenta runs natively within SAP and supports SAP ECC and SAP S/4HANA environments, including on-premises and supported private-cloud deployments. It provides SAP-integrated Excel preparation, validation against live SAP master data and finance rules, and full simulated posting before submission for approval.
Its configurable workflow supports approval routing based on journal attributes such as company code, journal value and G/L account, allowing organisations to define approval paths according to their financial-control requirements.
Where independent approval is required, the workflow can enforce requester-versus-approver separation. Approval thresholds and any permitted exceptions are determined by the organisation’s configured approval rules.
Promenta also supports a service-user posting model in which the SAP account responsible for posting is separate from the preparer or approver. With the appropriate SAP role and authorisation configuration, this allows organisations to restrict direct posting access for end users and require journals within scope to follow the controlled process.
Supporting documentation stays attached to each journal, with approval decisions, workflow actions and posting activity available through a reportable audit trail.
Because the solution operates within SAP, it uses the organisation’s existing SAP security and authorisation framework without requiring a separate external workflow platform for the core process. This can simplify the technical scope of the redesign and the collection of supporting evidence.
Promenta has developed workflow solutions for enterprise SAP environments since 2002 and offers SAP-certified products for finance and master data processes.
Where Promenta forms part of a remediation plan, management must demonstrate that the configured controls address the original deficiency and operate as intended.
What Evidence Will the Auditor Expect at Retest?
Following implementation, management should assemble evidence demonstrating the redesigned control’s effectiveness against the original deficiency.
Auditor retesting generally considers the control design, management’s own testing and evidence generated after the redesigned control became operational.
The remediation evidence package should typically include :
- An updated control narrative and risk and control matrix
- Walkthrough evidence showing the redesigned control in operation
- Management’s own operating-effectiveness testing, with samples and results
- A complete listing of journals for the post-remediation testing period, reconciled to the general ledger
- For each sampled journal: preparer, approver, timestamps, supporting documentation and proof that approval preceded posting
- Current listings of users able to post journals, including relevant privileged access
- For configured controls: evidence of the configuration and of any changes made to it
The documentation should also explain how exceptions were handled. Where a journal was rejected, amended or posted outside the expected route, management should be able to demonstrate what occurred and whether the control responded as designed.
An auditor may inspect records, observe control performance, conduct inquiries or reperform selected procedures. The nature and extent of testing depend on the control and its associated risks.
An additional reporting option exists for certain previously reported material weaknesses.
Under PCAOB AS 6115, an eligible company may voluntarily engage its auditor to report on whether a material weakness previously included in an AS 2201 auditor’s report continues to exist as of a management-specified date.
This engagement is subject to specific conditions, including management’s own evaluation and supporting evidence. It provides an opinion on the identified weakness rather than the effectiveness of ICFR as a whole.
How Long Does It Take to Remediate a Journal Entry Control Deficiency?
No PCAOB standard sets a fixed remediation period. In practice, many advisers plan for redesigned controls to operate for around two fiscal quarters, but this is a planning convention, not a PCAOB requirement.
Under AS 2201, paragraph .53, newly implemented controls must be in effect for a sufficient period to allow the auditor to evaluate their design and operating effectiveness. The required period depends on the nature and frequency of the control and the evidence available.
Company disclosures reflect this approach. In an August 2023 SEC-filed statement, Kulicke and Soffa explained that its material weakness would not be considered remediated until the relevant corrective controls had operated for a sufficient period and management’s testing established their effectiveness.
Three factors are particularly relevant to the remediation timeline :
- Control frequency : A monthly close review produces far fewer instances to test than a daily control. The required operating period must allow sufficient evidence to be gathered for the relevant control.
- Scale of the redesign : A revised review procedure may be implemented relatively quickly, while changes involving system configuration, access controls, training or additional procedures can require more time.
- Go-live timing : A control launched late in the year may not operate often enough before the assessment date to support a conclusion on operating effectiveness.
Management should plan backwards from the ICFR assessment date, allowing sufficient time for implementation, control operation, internal testing and the auditor’s independent evaluation.
A control may be implemented before year-end but still lack the operating evidence needed to support a remediation conclusion. The remediation status must reflect the evidence available at the assessment date.
Conclusion
A journal entry control deficiency can be considered remediated when management has addressed the underlying cause and gathered sufficient evidence to support the effectiveness of the corrected controls. The conclusion must be supported by testing rather than implementation alone.
For organisations using an SAP journal entry workflow, the controlled process may follow this sequence :
Prepare → Validate → Submit → Route → Review → Approve → Post → Audit
The final assessment should establish whether the original failure has been addressed, whether relevant exceptions have been resolved and whether sufficient evidence supports the remediation conclusion.
Promenta’s SAP Journal Entry Management solution provides configurable validation, approval and audit capabilities that can support this process within SAP</s
Frequently Asked Questions
1. What is a journal entry control deficiency?
A weakness in the design or operation of controls over journals, such as missing approval, self-approval, excessive posting access or missing support, means a misstatement might not be prevented or detected on time.
2. What does an auditor typically flag in a manual journal entry population?
Common findings concern approval, posting access, segregation of duties and incomplete review evidence. Auditors may also identify journals processed outside the controls being tested.
3 . What is the difference between a control deficiency, a significant deficiency and a material weakness?
The distinction depends on the potential severity of misstatement and the likelihood that it will not be prevented or detected. Significant deficiencies require oversight attention, while material weaknesses have broader ICFR reporting consequences.
4. What does a credible journal entry remediation plan contain?
A plan to remediate a journal entry control deficiency should identify the cause and scope of the deficiency, corrective controls, interim measures, implementation dates, testing requirements and accountability for completion.
5. Does correcting the sampled journals fix the deficiency?
No. It fixes individual errors. Remediation requires a corrected control that operates effectively across the affected process, backed by test evidence.