What is Adjustment Review?
Definition
Adjustment review is the finance control step used to evaluate whether an accounting adjustment is valid, accurate, supported, and approved before it affects reported results. Adjustment Review applies to accruals, reclasses, audit corrections, consolidation entries, foreign currency adjustments, statutory entries, and management reporting changes.
The review confirms that the entry has a clear business reason, correct account coding, proper period treatment, reliable calculation support, and an approval trail. It protects financial reporting by making sure adjustments improve accuracy rather than simply changing reported numbers without enough evidence.
Why Adjustment Review Matters
Adjustment review matters because adjustments can directly change revenue, expenses, assets, liabilities, equity, cash flow presentation, and business performance measures. A large accrual, reclassification, or foreign currency adjustment can affect profit, working capital, margin, or covenant reporting. Review gives controllers and finance leaders confidence that the entry is reasonable and traceable.
It is especially important during the period-end close, when many entries are prepared under tight reporting timelines. A structured review helps separate valid accounting corrections from entries that need more evidence, updated calculations, or additional approval.
How Adjustment Review Works
The review process usually begins after a preparer submits an adjustment with supporting documentation. The reviewer checks the accounting reason, recalculates the amount, confirms account and entity coding, reviews source evidence, and verifies approval requirements. If the adjustment is complete, it can move forward for posting or final approval.
Reason review: Confirm why the adjustment is needed and whether it belongs in the reporting period.
Amount review: Recalculate the entry using invoices, contracts, schedules, exchange rates, or reconciliations.
Classification review: Check account, entity, cost center, segment, currency, and financial statement line.
Support review: Confirm that the entry has clear source evidence and reviewer comments.
Approval review: Verify that approval thresholds and segregation rules have been followed.
Calculation Method and Example
A practical review calculation is:
Review variance = Proposed adjustment amount - Reviewer-supported amount
Assume a preparer submits a $96,000 expense accrual adjustment for consulting services. The reviewer checks the contract and service confirmation and determines that only $91,500 relates to the current month. The review variance is $96,000 - $91,500 = $4,500.
If the company’s review tolerance is $2,000, the reviewer should request a correction before the entry is approved. The final entry should record $91,500, not $96,000. This protects expense accuracy, accrued liabilities, and month-end profit reporting.
Common Adjustment Review Areas
Reviewers often examine journal entries that involve estimates, late transactions, material reclasses, or manual calculations. Analytical Review (Journal Entries) helps identify unusual amounts, unexpected account combinations, recurring adjustments, or entries posted outside normal close timing.
A Local GAAP to Group GAAP Adjustment may need review to confirm that local accounting has been converted correctly into the group reporting basis. Deal-related entries such as a Working Capital Purchase Price Adjustment may require review of closing balance schedules, purchase agreement terms, and settlement calculations.
Foreign Currency and Working Capital Review
Foreign currency adjustments need careful review because exchange rates, source currency balances, and reporting currency impacts must agree. A Currency Translation Adjustment (CTA) should be checked against approved rates and consolidation schedules. A Foreign Currency Inventory Adjustment or Foreign Currency Revenue Adjustment should show the original currency amount, rate source, reporting impact, and accounting period.
Working capital reviews focus on receivables, payables, inventory, accruals, cash, and debt-like items. A Working Capital Adjustment Mechanism should be reviewed against the agreement terms, while a Working Capital Adjustment Model should be checked for formula accuracy, source data, and assumptions. Finance teams may also use Working Capital Performance Review to understand how reviewed adjustments affect liquidity and operating performance.
Controls and Best Practices
Adjustment review should be supported by clear ownership, documented evidence, approval thresholds, and reviewer accountability. Each reviewed entry should show what was checked, what evidence was used, whether changes were requested, and when the final approval was completed.
Use standard review checklists for recurring, material, and sensitive adjustments.
Require independent review for entries above defined thresholds.
Retain calculation files, support documents, approval notes, and the final posting reference.
Track rejected or corrected adjustments to improve close quality over time.
Maintain a clear audit trail for every reviewed adjustment.
Summary
Adjustment review is the control activity that checks whether accounting adjustments are valid, accurate, supported, classified correctly, and approved. It helps finance teams identify calculation errors, unsupported entries, timing issues, and reporting impacts before final results are issued. When performed consistently, adjustment review improves financial reporting, audit readiness, cash flow visibility, and business performance measurement.
