Effective: May 22, 2012
Responsibility: Vice-President and Chief Financial Officer
To ensure that all manual journal entries that impact the Corporation’s financial statements are properly prepared, supported by adequate documentation, appropriately reviewed and approved and are recorded in the general ledger (GL) in a timely manner.
This policy applies to all journal entries that are manually prepared that are necessary to properly record business events and/or to adjust the reporting results to properly reflect IFRS.
This policy does not apply to system generated journals that are automatically posted to the GL by the sub-ledger, supporting system or module and/or system interface.
This policy does not apply to “RE-POST” transactions (KB61, KB11N) that are posted in the SAP Controlling (CO) module and are created to re-allocate costs and/or manage internal charge-backs.
Recurring journal entries: Journal entries that are known and are expected to be manually posted to the GL based on a recurring basis.
Scheduled journal entries: Journal entries (recurring documents) that are known and that have been scheduled to be automatically posted to the GL in future periods based on a pre-established recurring schedule that terminate within the current fiscal year.
Non-recurring journal entries: Journal entries that are posted on an ad-hoc basis as required to properly record business events and/or to adjust the reporting results to properly reflect IFRS.
Hand Postings: Journal entries that adjust the final reporting results to record business events and/or to properly reflect IFRS but that will not be posted to the GL or will be posted at a later date and not in the current reporting period (known as “material adjustments”).
4. GUIDING PRINCIPLES
- Journal entries can only be approved/posted by personnel with the requisite functional DFA.
- The act of posting a JE to the GL will be considered the documented approval of the JE.
- To ensure proper segregation of duties (SOD), journal entries should not be prepared/parked and approved/posted by the same individual.
- Procedures will be in place to ensure that all required journal entries have been posted to the GL in a timely manner and in the appropriate reporting period.
- Procedures will be in place to ensure that significant JEs pertaining to their area of responsibility have been reviewed by the Senior Director responsible or their delegate.
- Monitoring activities will be in place to identify potential control weaknesses and/or identify opportunities to increase efficiencies.
- All journal entries will have appropriate supporting documentation that fully explains the nature of the transaction, the amounts being recorded and that supports the reason/rationale for the journal entry. This documentation will be maintained and readily available for review for a period of six years.
PERSON RESPONSIBLE FOR INTERPRETATION AND APPLICATION
All questions pertaining to the interpretation or application of this Policy should be referred to the Director, Policy and Internal Control. The responsibility for interpretation of this policy ultimately resides with the Corporate Controller.
- Journal Entry Preparation – Processes shall be in place to ensure that JEs are properly and accurately prepared and that they provide complete and relevant supporting information to facilitate a review. Supporting processes or procedures should ensure that:
- JEs have accurate amounts supported by accurate calculations and relevant and clear supporting schedules;
- JEs have adequate explanation(s) for the basis and reason for the entry;
- JEs identify the period of time (e.g. month, quarter, YTD) the JE applies to or the period of adjustment;
- JE line item amounts are clearly referenced to the supporting documentation/schedules;
- JEs are consistent with similar prior entries (if applicable);
- If an entry is recurring, this should be noted and that the entry is basically unchanged (logic/calculation employed); and
- If something has changed it should be fully explained and verified.
- The JE format is consistent with data posting requirements (upload tool/template etc…);
- All minimum required fields should be completed;
- The SAP journal entry header description is to be completed (not blank) and provide a brief description of the JE; and
- Ensure correct data format/structure
- The name of the JE preparer is clearly identified in the source document or backup documentation;
- JEs have adequate supporting documentation (refer to section 4); and
- Scheduled JEs:
- Include a schedule summarizing the timing of the payments/recurring entries; and
- Are scheduled for periods ending within the current fiscal year. If necessary the entry can re-scheduled at the beginning of the subsequent fiscal period.
- Journal Entry Approval (Posting) – Processes shall be in place to ensure that all JEs are appropriately reviewed and approved by an independent party prior to posting the JE. In the cases where a scheduled JE is created, only one initial review is required for the initial and all subsequent scheduled posting periods.
The reviewer and/or approver is to use their best judgment and ensure that they have the requisite knowledge and competency to review highly technical JEs. In some cases a review by someone other than themselves might be more appropriate.
The act of posting a JE in SAP will be considered the documented approval of the JE.
Supporting processes or procedures should ensure that:
- The JE approver should be at least as senior as the preparer;
- The approver has the appropriate functional DFA;
- The approver has documented their review of the JE for reasonableness, accuracy and has verified the supporting documentation as deemed appropriate; and
- If the JE has been reviewed and approved by someone other than the individual posting the JE, the appropriate physical signatures/approvals must be in place before posting JE.
- Journal Entry Monitoring – Processes shall be in place to ensure that all necessary JEs have been posted and that high-risk or significant JEs are reviewed by senior staff at least quarterly. All monitoring activities shall be documented and review/approval thereof should be maintained and available for review.
Completeness: Supporting processes or procedures should ensure that all JEs necessary have been posted in the period. The processes should ensure that:
- There is a documented review of standard and scheduled journal entries to ensure that posting has completed as expected; and
- There is documented explanation for standard/recurring JEs not posted in the period.
General Monitoring: Supporting processes or procedures should identify high-risk JEs, help detect control weaknesses or indicators of fraud and possibly identify opportunities for improvement. The specific attributes to consider will be established by senior finance staff as deemed necessary. In all cases, the reports or data should be analyzed to identify abnormal trends, variances or control failures. If anomalies are identified, they should be investigated and corrective action should be taken.
Monitoring activities will be in place to ensure that the following are reviewed in each reporting period:
- JE volumes and amounts by group/person and parked vs posted;
- Large (material) entries in the period or that are over a pre-defined $ threshold or pre-defined authorization level;
- Potential SOD deviations where the same person parks & posts a JE or where an JE is posted without first being parked; and
- Other attributes/reports/metrics/measures as deemed appropriate.
Significant JEs: Each Senior Director and/or their delegates will review and approve significant JEs in the period that are in their area of responsibility.
Professional judgment will be used to determine the entries to review and/or that are deemed significant and in scope of the review. A significant JE will generally have a higher level of risk of being inaccurate or of having a material impact to the financial statements within their area of control or responsibility. Some risk factors to consider when identifying significant JEs would include but are not limited to:
- The materiality of the JE;
- JEs based on complex calculations or complex spreadsheets;
- Non-standard JEs;
- JEs prepared by new employees;
- New or modified JEs needed as a result of a new process, policy or new accounting standards or changes therein; and
- JEs that have a significant direct impact to F/S notes or disclosures.
At minimum, any journal entry that has a journal entry line item in excess of $5M, in their area of responsibility, shall be considered a significant JE requiring review.
JEs deemed significant for the period will be identified on the JE log. The review and approval will be documented on the JE or in its supporting documentation.
- Supporting Documentation - All journal entries will have appropriate supporting documentation that fully explains the nature of the transaction, the amounts being recorded and that supports the reason/rationale for the journal entry. This documentation will be maintained and readily available for review for a period of six years.
Individual JEs must include:
- The name of the JE preparer and date of completion/submission;
- Detailed information regarding the entry, rationale and reason for the JE. This information should be:
- Complete and clear;
- Include context/background as appropriate;
- Be in plain language (no jargon or unexplained acronyms);
- Include references to the applicable IFRS standards or related guidance;
- Explain calculation objectives and methods employed (logic of calculations); and
- It should be understandable to someone with general (not technical) business knowledge.
- Referencing and/or cross-referencing to link material or significant JE amounts to the associated supporting document(s);
- Appropriate source documents or reference information as appropriate and reasonable. This can include actual copies of the supporting document (e.g. Invoice, PO) or adequate header data that can be employed to directly secure the supporting document;
- The resulting JE line amount should be clearly denoted in the supporting documents and the calculation logic to support the amount should be clear;
- Secondary methods or alternate calculations to validate the underlying calculation (where possible) and/or test for reasonableness; and
- Other data validity or logic tests should be employed as is reasonable and possible.
All JE’s in the period:
- Are to be maintained in an indexed monthly/quarterly binder maintained by the JE preparer;
- Will be summarized in a JE log to be retained in the binder; and
- Will have evidence of the completeness review (Section #3) retained in binder.
- The binder is to be retained on site for am minimum of 2 years and off site thereafter;
- Spreadsheets that support the JE process or calculations are to be maintained in a centralized folder by the JE preparer; and
- All supporting spreadsheets or data files should be readily available for access/review in their original digital state (e.g. data, formulas, queries, calculations) as was apparent at the time of preparation of the JE.
- Exceptions – There can be circumstances where full compliance with this policy or the guidelines is not possible. If this is the case, efforts should be made to establish appropriate compensating controls/processes to effectively monitor the non-compliance. Some notable examples include but are not limited to:
Segregation of Duties:
- The full SOD as required in section 2 may not be operationally possible and the JE preparer/poster will be the same person. In this case, the JE preparer/poster should advise their superior of all identified SOD failures.
- The superior should review and approve these journals or (at minimum) document their awareness of the SOD deviations. This review can be documented via email.
- An individual with the appropriate functional DFA may not be available to directly post (approve) the journal entry in SAP. If there is a likely risk that the period close deadlines will be missed as a result, the DFA manager can temporarily delegate his/her journal entry approval/posting authority via email to another party. This cannot be a standing delegation.
- The email delegating the JE approval/posting authority is to be retained with the JE’s in question and/or in the centralized journal entry file/binder.
- In the rare cases where the JE approver is not as senior as the JE preparer, an email from the Senior Director Finance or their delegates must be retained to document this authorization. The approver must still have the requisite functional DFA to post JEs.
Hand Postings (Corporate Finance)
- In cases where a JE is required but is not reflected in the GL in the appropriate reporting period:
- All efforts should be made to ensure that hand postings (HPs) are posted in the GL in a subsequent period; and
- Proof that entry was subsequently posted is retained.
- All hand postings will require documented review and approval by the Corporate Controller.
Re-Opening the GL
- In cases where the GL is re-opened to post JEs after the close:
- GL will be re-opened by the Financial Systems Group. Only upon the receipt of an email request from the Corporate Controller or the Director of Financial Reporting;
- Access will be provided to one individual if possible; and
- The GL will closed upon completion of the posting or at minimum at end of the same business day.
- Roles And Responsibilities
- All departments or staff that actively post manual journal entries will ensure that:
- All JEs are accurate and complete;
- All JEs are properly reviewed prior to posting to the GL;
- All JEs are approved/posted by an individual with the requisite functional DFA;
- All JEs are posted to the GL in a timely manner;
- Appropriate controls and/or compensating controls are in place to ensure/monitor proper SOD;
- Adequate backup documentation is retained for all JEs by the preparer and maintained in a central location; and
- Procedures (such as periodic training) are in place to ensure that JE preparers and approvers are aware of the requirements of this policy.
- Corporate Financial Systems Staff will ensure that:
- Adequate system controls are in place to ensure proper SOD;
- Any requests to re-open the GL are properly authorized in accordance with section 5;
- There is a documented annual review of SAP user access profiles to ensure that they are reasonable and consistent with the user’s DFA authorities; and
- Will provide/run queries to support the monitoring requirements in section 3.