Accounting Systems and Controls
Candidates must understand the accounting system as a set of controls protecting assets and ensuring reliable records. Learn the components of internal control: control environment, risk assessment, control activities, information and communication, monitoring. Know preventive versus detective controls, and segregation of duties (custody, authorisation, recording).
Specific controls: bank reconciliations, petty cash imprest, sales and purchase ledger controls, credit checks, physical safeguards, authorisation limits, reconciliations and exception reports. Computerised systems introduce general IT controls (access, backup, disaster recovery) and application controls (input, processing, output).
Traps: confusing a control with an objective; suggesting a control that does not address the stated risk; forgetting that reconciliations must be performed by someone independent of recording; overlooking that segregation of duties may be impractical in small entities where compensating controls are needed. Fraud versus error - intent distinguishes them.
Worked example: a purchase ledger clerk also opens the post and records supplier invoices. Risk: fictitious invoices paid. Control: separate receipt of post, match invoices to goods received notes and purchase orders (three-way match), and require authorisation before payment.