What is Accrual Review?
Definition
Accrual review is the finance activity used to check whether accruals are accurate, complete, supported, approved, and recorded in the correct reporting period. It supports the Accrual Basis of Accounting by confirming that expenses are recognized when incurred and revenue is recognized when earned, even when invoices, payments, billings, or cash receipts occur later.
In close operations, accrual review helps accounting teams evaluate vendor service accruals, payroll estimates, tax accruals, interest accruals, unbilled revenue, recurring accruals, and intercompany balances. It improves financial reporting accuracy, cash flow visibility, profitability analysis, audit readiness, and management confidence in period-end results.
How Accrual Review Works
The review usually begins after accruals are identified, calculated, and prepared for posting. The reviewer checks the accrual amount against contracts, purchase orders, service confirmations, timesheets, usage reports, supplier statements, billing milestones, and management approvals.
The review also confirms that the journal uses the right account, entity, cost center, currency, period, and reversal date. Analytical Review (Journal Entries) helps finance teams compare accruals with prior periods, budgets, forecasts, actual invoices, and unusual movements before the books are finalized.
Core Review Checks
A practical accrual review should confirm both accounting accuracy and business reasonableness. It should not only check arithmetic, but also whether the accrual reflects real economic activity in the correct period.
Cutoff review: Confirms that the revenue or expense belongs to the period being closed.
Completeness review: Checks whether all material accruals have been captured.
Accuracy review: Tests the calculation, rates, quantities, assumptions, and supporting documents.
Approval review: Confirms that the right finance owner or business owner approved the accrual.
Reversal review: Ensures the accrual can clear when the actual invoice, billing, or payment is processed.
Worked Example and Metric
Assume a company records a $44,000 accrual for outsourced customer support services received in June, but the vendor invoice arrives in July. During review, finance checks the service contract, confirms delivery with the operations owner, validates the cost center, and approves the entry: Debit customer support expense $44,000 and credit accrued liabilities $44,000.
A useful metric is accrual review completion rate: Accrual Review Completion Rate = Accruals reviewed by close deadline ÷ Total accruals requiring review × 100. If 150 accruals require review and 141 are reviewed by the close deadline, the rate is 141 ÷ 150 × 100 = 94%. A high rate usually indicates strong close discipline and clear ownership. A low rate may show that evidence collection, reviewer availability, or approval timing needs closer attention.
Management and Performance Review
Accrual review supports management reporting because it improves the reliability of expense trends, revenue timing, working capital balances, and forecast explanations. Monthly Business Review (MBR) and Quarterly Business Review (QBR) meetings often rely on reviewed accrual data to explain margin movements, budget variances, supplier costs, and revenue recognition timing.
Finance teams may also use Budget Accountability Review to compare accrued expenses with approved budgets and cost center ownership. Procurement Performance Review can help validate supplier-related accruals by reviewing purchase order status, service completion, contract pricing, and expected invoice timing.
Reconciliation and Cash Flow Impact
After the close, finance teams should compare reviewed accruals with actual invoices, payments, customer billings, and cash receipts. Reconciliation Quality Review helps confirm whether accrual balances are cleared properly, whether estimates were reasonable, and whether old balances require follow-up.
Accrual review also supports Working Capital Performance Review because accrued liabilities and accrued revenue affect the timing of future cash movements. A Cash Flow Statement Review may use reviewed accruals to explain why profit differs from operating cash flow and how unpaid obligations or unbilled revenue affect liquidity.
Access, Compliance, and External Review
Accrual review should include control checks over who can prepare, modify, approve, and post accrual entries. User Access Review (Data) helps confirm that access rights align with accounting responsibilities and approval authority.
For regulated or externally reported companies, accrual review supports audit evidence, compliance documentation, and lender or investor confidence. Implementation Compliance Review may be used when new close systems, journal templates, or approval rules are introduced. In financing contexts, a Credit Rating Agency Review may consider the quality of earnings, working capital trends, and cash flow reliability, all of which depend on disciplined accrual review.
Summary
Accrual review confirms that accruals are complete, accurate, supported, approved, and recorded in the correct reporting period. It covers cutoff, calculations, approvals, journal review, reconciliation, access checks, cash flow analysis, and management reporting. When performed consistently, it improves financial reporting accuracy, close readiness, audit support, working capital visibility, and confidence in business performance decisions.
