Types & Principles of Accounting Controls Flashcards
Define “internal control”.
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 the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.
Define “detective controls”
“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.
Define “feedback controls”.
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.
Define “general controls”.
Controls over the environment as a whole. Apply to all functions, not just specific accounting applications. General controls help ensure that data integrity is maintained.
Define “feed-forward controls”.
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.
Define “preventive controls”.
“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.
Define “application controls”.
Controls over specific data input, data processing, and data output activities. 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.
Define “corrective controls”.
Paired with detective controls, they attempt to reverse the effects of the error or irregularity which has been detected. Examples of corrective controls include maintenance of backup files, disaster recovery plans, and insurance.
