How to Use AI for Accruals Without Losing the Audit Trail

Use AI to propose accruals, not to book them. Let it scan open POs, vendor history and invoices received after period end for services in the period, while a formula does the arithmetic. A person approves each entry, and the support file records source, method, reviewer and true-up.

Why Do Auditors Care How an Accrual Was Estimated?

An accrual for an unbilled cost is an accounting estimate. Your year-end auditor tests it, and a buyer's quality-of-earnings team may test it again.

In a US private-company audit, the standard is SAS 143 (AU-C 540). It took effect for periods ending on or after December 15, 2023. The auditor can respond in one of three ways, or a mix (Texas Society of CPAs):

1. Use evidence from events up to the date of the audit report, such as the actual invoice.
2. Test how management made the estimate.
3. Develop their own point estimate or range and compare.

Canada's revised CAS 540 "mirrors ISA 540 (Revised)" (CPA Canada). The international standard, used in the UK, sets out the same three approaches. It also asks whether your methods, significant assumptions and data are appropriate under your accounting framework (IAASB flowchart).

AI doesn't change those questions. It changes who drafts the answer. A good trail makes approach 2 quicker for your auditor.

Auditors also test completeness through the search for unrecorded liabilities. They scan payments and invoices for weeks after period end, looking for costs you didn't accrue. A support file that lists every candidate you considered, including rejected ones, answers that test.

What Should AI Do in the Accrual Process?

Give the model narrow jobs. Keep the arithmetic and the decision outside it.

1. Find candidates. A report lists vendors whose usual cycle (monthly, quarterly or annual) shows no invoice this period. That part is a query, not AI. The model adds what a report can't read: emails about work done, new contracts and Slack approvals.
2. Match evidence. For each candidate, it pulls open POs, receiving records, timesheets and invoices received after period end.
3. Propose a method. It suggests subsequent invoice, PO price, timesheet or run-rate from the evidence found. See How to Estimate Accruals for Invoices That Haven't Arrived for how to choose.
4. Calculate deterministically. A formula computes the amount from the chosen method. The model never does the arithmetic.
5. Draft the memo. The model writes one or two lines on the basis, citing the documents used.
6. Route for approval. A person accepts, edits or rejects each line before anything posts.

Close-software vendors describe the same split. Rillet says "Nothing posts without approval," and that the agent's job is to "surface the work and draft the answer" (Rillet).

What Belongs in the Audit Trail?

Each proposed accrual carries these fields. Store them in the support file attached to the journal entry.

Most audit-trail checklists stop at who approved. The true-up row is the one your auditor will actually use. A year of small, explained differences by vendor is the best evidence that your method works.

Three Vendors, Step by Step

All vendors and figures are sample numbers for illustration, not client data.

Sample Co. closes March. The candidate report flags three vendors with no March invoice in AP.

How each line was built:

• Vendor A (hosting). The formula averages three invoices: (4,180 + 4,220 + 4,240) / 3 = 4,213.33, rounded to US$4,213. The vendor's billing console wasn't available to the preparer, so the formula fell back to run-rate. Where the console shows March usage, use it instead.
• Vendor B (legal). The firm emailed a March hours summary. 22 hours at the US$350 engagement rate gives US$7,700.
• Vendor C (supply). The receiving log shows 500 stock units received March 28 against a PO at US$12.40, giving US$6,200.

The entry. Vendor C's units are inventory, so they don't go to expense.

Book the reversal dated April 1. If your system doesn't reverse automatically, create it by hand. Check it posted before you enter April bills, or April expense is counted twice.

The true-up. The April invoices land US$442 higher, or 2.4% of the accrual. The reversal puts that US$442 into April expense, so no correcting entry is needed. If an invoice arrives before you issue the statements and the difference is material, adjust March instead.

The legal invoice included US$350 of filing fees missing from the hours summary. For May, the reviewer asks the firm for hours plus expenses.

What to Automate vs Keep With a Person

Automate (draft or calculate):

• The candidate report by billing cycle
• Pulling POs, receipts, timesheets and post-period invoices
• Amounts by formula from the chosen method
• The memo and the support fields, with timestamps from the audit log
• The monthly true-up report by vendor

Keep with a person:

• Confirming the goods or services were received
• Choosing the method when evidence conflicts
• Legal claims and other loss contingencies (that's ASC 450, not an accrual formula)
• Approving every entry, and any change to the floor or method policy

Controls That Keep the Trail Intact

1. No model arithmetic. Every amount comes from a formula. A final check confirms each number in the memo matches the calculated field.
2. Version the prompt. Record which prompt or rule produced each draft. Change it between closes, not during one.
3. Separate preparer and approver. If you're a one-person team, have the CFO or owner approve entries above a set amount. Review the monthly true-up report as a detective control.
4. Reverse and track. Check every reversal posted, and report the true-up by vendor each month.
5. Test before you rely on it. Run the process on a closed period first and compare it to what you booked.
6. Set a floor. Below a set amount, expense the cost when invoiced. Each quarter, total the items you skipped to confirm they stay well below materiality. Ramp's guide recommends a threshold for this reason (Ramp).

COSO's GenAI guidance treats posting as its own capability type, with minimum controls of its own (Journal of Accountancy). Controls 1 to 4 are our version of that for a small team.

FAQ

Can AI post accrual journal entries automatically? It can prepare them, but a person should approve every entry before it posts. That approval is the control your auditor will test.

Do auditors accept AI-proposed accruals? They test the estimate and your process, not the tool. Keep the source, method, reviewer and true-up so they can recompute each amount.

What if the AI proposes the wrong method? The reviewer changes it and notes why. If the same correction repeats, update the rule or prompt before the next close.

How do I know if our accrual estimates are good? Compare each accrual with the actual invoice next month. A steady, small true-up by vendor is the evidence that your method works.