Internal Accounting Systems and Controls
Purpose and components of control
Internal controls safeguard assets, ensure accurate records and support compliance. Understand the control environment, risk assessment, control activities, information and communication, and monitoring. Know the difference between preventive, detective and corrective controls, and between entity-level and transaction-level controls. Segregation of duties, authorisation, physical safeguards, reconciliations and access controls are core control activities.
Accounting systems and documentation
Know the books of prime entry (sales, purchases, returns, cash book, journal) and how they post to the ledgers. Understand the receivables and payables cycles, the need for control accounts and reconciliations, and the purpose of the trial balance. Bank reconciliations, supplier statement reconciliations and control account reconciliations are detective controls that identify errors and fraud.
Fraud, error and IT controls
Distinguish error from fraud and know the types of fraud (teeming and lading, false invoicing, payroll fraud). Understand IT general controls (access, backup, change management) and application controls (input, processing, output). Recognise the risks of spreadsheets and the controls needed over them.
Traps and a worked rule
Traps: describing a control without saying which risk it addresses; confusing a detective control (reconciliation) with a preventive one (authorisation); and overlooking that segregation of duties requires no single person to control a transaction end to end. Rule of thumb: for each risk, name the control, its type, and the evidence it leaves.
Worked example: A clerk both records customer receipts and posts to the receivables ledger, enabling teeming and lading. Control: separate the cash recording from the ledger posting and reconcile the receivables control account monthly - a preventive segregation plus a detective reconciliation.