Strengthening Journal Entry Controls in QAD

Posted on: February 10, 2026 | By: Blake Moore | QAD Business Process, QAD Distribution, QAD Financials, QAD Manufacturing

Strengthening Journal Entry Controls in QAD: How Sarbanes-Oxley Shaped Today’s Approval Workflows

When the Sarbanes-Oxley Act (SOX) was enacted in 2002, finance organizations across the U.S. were pushed into a new era of internal control scrutiny. Designed to restore trust after high-profile corporate accounting scandals, SOX introduced sweeping requirements for financial transparency, accountability, and auditability. For CFOs, Controllers, and accounting teams, this translated into stronger controls around the creation, approval, and posting of journal entries.

Among the key SOX requirements, Section 404 stands out. Companies must implement and document effective internal controls over financial reporting, and auditors must validate those controls annually. As a result, journal entry approval processes have become a focal point for auditors. They look for consistent evidence that:

1. Approval occurs before the journal entry is posted to the general ledger. SOX emphasizes preventative controls rather than after-the-fact corrections.

2. The approver is independent from the preparer. Segregation of duties is a foundational SOX principle.

3. The approver has the appropriate authority. Companies must demonstrate that individuals approving entries understand and take responsibility for the financial impact.

4. Approval is clearly documented and easily retrievable for audit testing. Auditors must be able to trace who prepared the entry, who approved it, and when, without ambiguity.

Meeting these expectations can be challenging, especially in ERP systems that were originally designed for operational efficiency instead of regulatory compliance. QAD is no exception, although more recent versions have made meaningful progress toward simplifying SOX-compliant journal entry approvals.

Understanding QAD’s GL Layering and Why It Matters for Approvals

Since QAD’s Enterprise Edition, the financial architecture has relied on three distinct General Ledger layers:

• Primary Layer: The official ledger where operational transactions post

• Secondary Layer: Optional, often used for management adjustments or GAAP and IFRS entries

• Transient Layer: A temporary layer where transactions can be edited or deleted before being transferred to a permanent layer

This structure provides flexibility. Users can run reports that include or exclude layers, and the Transient layer allows accountants to stage and test entries before finalizing them. The system also prevents period close when items remain in the Transient layer, reinforcing accounting discipline.

In earlier QAD versions, however, approval was little more than a checkbox showing that someone had reviewed the entry. It did not prevent the entry from posting to the Primary layer first, which auditors frequently flagged as a control weakness. If an entry was not approved, the only fix was to reverse and re-enter it, an inefficient and risky process.

How QAD AUX and Adaptive Improved the Approval Process

QAD’s newer platforms, AUX and Adaptive, introduced a major improvement. Journal entries that require approval must now post to the Transient layer first.

Only after approval does the system automatically transfer the entry to the Primary layer. This change aligns much more closely with SOX expectations by ensuring:

• No journal entry reaches the official ledger before approval

• Approval functions as a preventative control rather than a detective one

• Users retain flexibility while auditors gain confidence in the workflow

For many Controllers and CFOs, this enhancement has made QAD’s native approval workflow a realistic alternative to custom development or third-party workflow tools.

One challenge still remains.

The GL Account Type Limitation

QAD offers several GL account types, each with built-in controls:

• Standard Accounts: Used for most financial activity

• Control Accounts: Keep subledgers such as A/R and A/P in sync

• Payment Accounts: Allow payments to be voided or bounced before posting to the bank ledger

• Rounding Accounts: Support multi-currency operations

• Cross-Company Accounts: Ensure intercompany entries remain balanced

Cross-Company accounts include a strict control. Journal entries using this account type cannot be posted to the Transient layer.

This creates a conflict with the approval workflow, which depends on staging entries in the Transient layer prior to approval.

The Workaround

To maintain both approval workflow functionality and intercompany balancing, users can:

• Create two separate entries using Standard account types

• Enable the inter-company code on those accounts

• Manually ensure the entries remain in balance

While this approach removes the system’s automatic balancing safeguard, it preserves the approval workflow and prevents entries from posting to the Primary layer before approval.

Setting Up Journal Entry Approval Workflow in QAD: The Essentials

To activate the workflow, organizations must complete four core configuration steps:

1. Enable journal entry approval workflow on the Entity record

2. Define approval configuration, including rules, thresholds, and requirements

3. Build approval routes that align with organizational hierarchy and segregation-of-duties policies

4. Create a Daybook tied to the Transient layer with approval requirements enabled

Once configured, journal entries follow a controlled and auditable lifecycle before reaching the Primary GL layer.

Reporting: The Final Piece of SOX Compliance

Even with workflow controls in place, organizations still need to prove compliance during audits. This typically requires reports that show:

• The creator’s user ID and timestamp

• The approver’s user ID and timestamp

• Status changes and approval dates

QAD exposes these data fields for custom reports and browses, but there is currently no standard out-of-the-box report. Most organizations create custom queries to meet auditors’ documentation requirements.

Final Thoughts

The evolution of QAD’s journal entry workflow, from post-first approvals to a Transient-layer-based approval model, mirrors broader changes driven by Sarbanes-Oxley and rising audit expectations. While certain nuances remain, particularly around account types, QAD’s AUX and Adaptive platforms provide a much stronger foundation for controlled and compliant journal entry processing.

For organizations looking to strengthen SOX controls or streamline approval workflows, understanding these mechanics and configuring them thoughtfully is essential.

Next Step

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