What is Accounting Control?

Accounting control is the manner in which processes are configured to manage risk within an organization. The targets of accounting control are as follows:

To guard against the loss of assets
To ensure that financial statements represent fairly the financial results, position, and cash flows of a business
To ensure that objectives are met in an effective and efficient manner
To ensure that laws and regulations are followed

The system of accounting control may contain dozens or hundreds of separate control activities that are intended to work within the specific characteristics of a business. Thus, the accounting controls for a manufacturer are different from those of a distributor or retailer, even though all three firms may operate within the same industry.

Management may elect to reduce accounting controls somewhat in order to increase the efficiency of a process. This may call for the creation of new controls elsewhere in order to offset the negative effects of the eliminated control.

Characteristics of Accounting Control

The key characteristics of accounting control are as follows:

Enhances data accuracy and reliability. Accounting control ensures that financial records are accurate, complete, and reliable. This facilitates the preparation of financial statements.
Detects errors and fraud. Accounting control aims to prevent and detect errors, misstatements, or fraudulent activities in financial transactions and reporting.
Compliance with regulations. Accounting control ensures that the organization complies with relevant laws, accounting standards, and regulatory requirements.
Safeguards assets. Accounting control protects organizational assets from misuse, theft, or loss through proper authorization and recording procedures.
Provides a system of documentation. Accounting control maintains proper documentation of policies, procedures, and transactions to ensure accountability and provide audit trails.

Accounting control serves as a critical element in maintaining the integrity of an organization’s financial processes and safeguarding its assets. By ensuring compliance, preventing fraud, and promoting accuracy, it helps build trust and supports effective decision-making at all levels of the organization.

Types of Accounting Controls

There are two types of accounting controls, which are as follows:

Detective controls. These controls are intended to spot transactions that were not recorded as intended, or which were fraudulently recorded. For example, a bank reconciliation may spot a check that had been altered by the recipient to a higher payable amount. This type of control does not prevent improper transactions from arising - it only detects their presence.
Preventive controls. These controls are intended to prevent incorrect transactions from ever taking place. They are inserted into a system at points where a controls review has spotlighted the risk of fraud or incorrect transaction entries. For example, a preventive control does not allow a purchasing person to also receive goods that have been ordered.