Types of Limitations of Accounting Controls Flashcards
What is an internal control?
A process that is designed to provide reasonable assurance.
Who effects IC?
Management, BOD, and other personnel
Why do we have IC? What are the goals?
Effectiveness & Efficiency of operations
Reliability of Financial Reporting
Compliance with Laws and Regulations
What are some limitations of IC?
- Management may set inappropriate objectives
- People screw up
- Management may over-ride controls
- Collusion
- Natural disasters
What are the three types of control deficiencies
1) Control deficiency: shortcoming that reduces likelihood of entity achieving its objectives.
2) Significant deficiency: More serious than a control deficiency but less than a material weakness
3) Material weakness: Creates a reasonable possibility of material misstatement of the entity’s financial statement
What are the three classifications controls?
1) Preventative, detective and corrective
2) Feedback and feed-forward controls
3) General and application controls
What is preventative, detective, and corrective controls?
Preventive- Before controls (prevent error or irregulator)
Detective controls- “After” Controls- Detect error after occurrence.
Corrective- Reverse problems that occur (backup files, disaster recovery plans).
What are general (holistic) controls?
Apply broadly to most computerized functions.
Example: Restricting access to computer facility, backup file systems, and background checks of personnel.
What are application controls?
Focus on accounting applications that include data entry, update, and reporting
Example: Data checks (dates, dollar amounts)
What are feedback and feed-forward controls?
Feedback- Events that have already happened
Feed-forward- project future results based on what is happens now. If it is undesirable, then you change it.
- Example: Inventory ordering system
