Application controls definition

What are Application Controls?

Application controls improve the quality of the data that is input into a database. Some of these controls usually reside within an organization’s software, where they are programmed to flag entries that are incorrect or incomplete, or ensure that transactions are processed and reported correctly. As such, they are an efficient way to block errors from entering the database, and ensure that acceptable data are processed and reported correctly thereafter. The main categories of application controls are input controls, processing controls, and output controls.

Types of Application Controls

There are a variety of application controls, as noted below:

  • Input controls. Input controls ensure that data being input into a database have met a pre-set group of criteria. An example of an input control is the validity check, which reviews the data entered into a data entry screen to ensure that it meets a set of predetermined range criteria. Or, a completeness check will examine a data entry screen to see if all fields have an entry.

  • Processing controls. Processing controls ensure that data are processed properly once they have been entered into a system. For example, an accounting package is configured to only allow seven-year straight-line depreciation for any fixed assets classified as furniture and fixtures.

  • Output controls. Output controls ensure that the information produced by a system is complete and properly presented. For example, the company controller must review and approve the financial statements before they can be issued. Or, access controls are used to ensure that only authorized personnel can access a firm’s accounting report writer software, thereby ensuring that financial statements cannot be improperly altered.

Example of Application Controls

As an example of how application controls are used, Cinnamon Corporation has an accounts payable process that involves the use of all three types of application controls. Here are some of the controls used within the process:

  • Input controls. All supplier invoices are recorded in the accounting system through a standard interface, which contains several validity checks to ensure that the data fall within a predetermined range of amounts, and that all supplier names are already present within the accounting system. If there is a discrepancy, the user is prodded by the software to make a correction.

  • Processing controls. Once an invoice has been entered, the system automatically compares unit costs to what was authorized in a related purchase order. If there is a discrepancy, the software rejects the invoice unless there is a supervisory override. This control ensures that billed amounts are the same as what was originally authorized.

  • Output controls. The payables system generates a log of all transactions entered, which can be perused to see if there are any anomalies that require further investigation. Any issues found might trigger actions to enhance upstream controls.

This example shows how different types of application controls can be used to enhance the quality of the data being used within an accounting process.

Related AccountingTools Course

Accounting Controls Guidebook