Figure 1 illustrates these points logically.
Figure 1 Management Strategy for Control Risk and Weakness
The basic characteristic of a weakness is that it can be corrected cost-effectively by means of appropriate controls
Control risk
exists
Buy
insurance
No problem; Must
no controls or carry risk
insurance needed alone
Objectives of Controls on Processing
Accounting controls, like other controls, consist of objective, preventive, feedback, and comparative follow-up elements. More specifically, the objective, the excepted result (specified as a preventive measure), the actual result (specified as a feedback measure), and the follow-up form the backbone of accounting controls. They provide assurance that accounting processing meets four major objectives:
Authorization: approval for a transaction to take place; the control objective is to ensure that all transactions are authorized.
Recording: creating a documentary or computer record of the data in a transaction; the control objective is to ensure that all transactions are recorded.
Access: the use of assets, including production, processing, and transfer to an outside party; the control objective is to allow access to assets only for authorized purpose and to record access whenever it occurs.
Asset accountability: having accounting records that describe the organization's assets; the control objective is to ensure that accounting records describe only real assets and describe all of them.
Specific controls must be designed to achieve each of these objectives. Control success depends on intelligent design and use. Most procedures that serve accounting control objectives can be incorporated into the internal structure of hardware, software, and administrative routines.
A lot of latitude is possible in designing procedure to meet each objective. However, each procedure must be related to one or more objectives by specifying (1) a statement of the planned or excepted result; (2) a method for measuring the actual result; and (3) recommended follow-up procedures, including comparison of expected and actual results.
