Types and Principals of Accounting Controls

Question 1

What are general controls?

Answer 1

Controls over the environment as a whole. General controls apply to all functions, not just specific accounting applications. They help ensure that data integrity is maintained

Question 2

Define “detective controls.”

Answer 2

After-the-fact controls designed to detect an error after it has occurred (though preferably before the erroneous information is used to update the database or appears in reports). Examples of detective controls include data entry edits (field checks, limit tests) and reconciliation of batch control totals

Question 3

Define “application controls.”

Answer 3

Controls over specific data input, data processing, and data output activities. They are designed to ensure the accuracy, completeness, and validity of transaction processing. As such, application controls have a relatively narrow focus on those accounting applications that are involved with data entry, update, and reporting

Question 4

Define “feedback controls.”

Answer 4

A procedure in which the results of a process are evaluated and, if the results are undesirable, the process is adjusted to correct the results. Most detective controls are also feedback controls

Question 5

Define “preventive controls.”

Answer 5

Before-the-fact controls designed to stop an error or irregularity from occurring. Examples of preventive controls include locks on building and doors, password-protected access to files, and segregation of duties

Question 6

Define “corrective controls.”

Answer 6

Paired with detective controls, they attempt to reverse the effects of the error or irregularity that has been detected. Examples of corrective controls include maintenance of backup files, disaster recovery plans, and insurance

Question 7

Define “internal control.”

Answer 7

A process, effected by the entity’s board of directors, management, and other personnel, that is designed to provide reasonable assurance regarding the achievement of objectives in these categories:

1. )Effectiveness and efficiency of operations
2. )Reliability of financial reporting
3. )Compliance with applicable laws and regulations

Question 8

Define “feed-forward controls.”

Answer 8

A process in which future results are projected based on current and past information and, if the future results are undesirable, the inputs to the system are changed to avoid the projected outcome. Many inventory ordering systems are essentially feed-forward controls: The system projects product sales over the relevant time period, identifies the current inventory level, and orders inventory sufficient to fulfill the sales demand.