What Does Roll Forward Mean in an Audit?

In an audit, a roll forward is a procedure used to extend conclusions from tests performed at an interim date to the financial year-end. Auditors often test account balances at a date before the company’s fiscal year-end, for instance, on September 30 for a company with a December 31 year-end. The roll forward then bridges the gap by examining the transactions that occur in the remaining period, known as the roll forward period, which allows the auditor to form a conclusion on the year-end balance without re-testing the entire account.

Purpose of a Roll Forward Procedure

The purpose of a roll forward procedure is to enhance audit efficiency. Testing accounts at an interim date allows auditors to spread their work out over a longer period. This helps manage workloads and avoid a bottleneck of procedures during the intensive period after a company’s fiscal year-end, when deadlines are tight.

This approach also allows for a targeted focus on risk. Instead of re-examining the entire year’s activity, the audit effort concentrates on transactions from the interim date to the fiscal year-end. This focused review helps identify unusual transactions that could present a material misstatement.

For public companies, the Public Company Accounting Oversight Board (PCAOB) requires roll-forward procedures when controls are tested at an interim date. The extent of this testing depends on the interim results, the length of the roll forward period, and whether any changes in internal controls occurred after the interim date. This ensures the conclusions drawn at the interim date remain valid for the fiscal year.

Information and Analysis for a Roll Forward

The foundational piece of this process is the audited interim balance. This starting point represents the account balance that has already been subjected to detailed audit testing at an earlier date.

Next, the auditor obtains a detailed transaction ledger for the roll forward period. This ledger lists every transaction that impacted the account between the interim audit date and the fiscal year-end. For an accounts receivable roll forward, this would include all sales invoices and cash receipts applied to customer accounts during that time.

Finally, the auditor gathers supporting documentation to test a sample of transactions within the roll forward period. For example, an auditor might examine bank statements to confirm cash deposits or inspect shipping documents for revenue transactions. The nature and extent of this testing depend on the risk associated with the account and the transactions that occurred.

The Roll Forward Process in Practice

The process begins with the confirmed interim balance. For instance, if an auditor verified a cash balance of $500,000 on September 30, this figure is the opening value for the roll forward calculation.

The auditor then summarizes the activity from the transaction ledger for the roll forward period. Using the cash account example, the auditor would add all cash receipts that occurred between October 1 and December 31 to the interim balance. They would also subtract all cash disbursements during the same period.

After applying all additions and subtractions, the auditor arrives at a calculated year-end balance. This figure is then compared to the year-end balance reported by the company on its general ledger. If the calculated balance matches the company’s reported balance, it provides strong evidence that the year-end figure is accurate.

Any discrepancy between the auditor’s calculated balance and the company’s reported balance must be investigated. A difference could indicate a recording error, a missed transaction, or other potential misstatement. The auditor would then trace the variance back to specific transactions to identify the source and determine if an adjustment to the financial statements is required.