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Chapter 8: Problem 6

Which of the following control activities is not relevant when a company uses a computerized (rather than manual) accounting system? (a) Establishment of responsibility. (b) Segregation of duties. (c) Independent internal verification. (d) All of these control activities are relevant to a computerized system.

Short Answer

Expert verified
All control activities are relevant to computerized systems.

Step by step solution

01

Understanding the Options

First, let's understand each of the control activities listed. Option (a) is "Establishment of responsibility," which assigns specific tasks to individuals, allowing easier tracking of errors. Option (b) is "Segregation of duties," which involves separating responsibilities to prevent fraud and errors. Option (c) is "Independent internal verification," which involves periodically reviewing records and activities for accuracy. Option (d) suggests all the mentioned activities are relevant. Consider how each applies to computerized systems.
02

Analyze Establishment of Responsibility

Evaluate option (a), "Establishment of responsibility." Even in computerized systems, it is crucial to assign responsibility to specific individuals to manage input data, system updates, or oversight roles. This ensures accountability, which is equally relevant in computerized systems as in manual ones.
03

Check Segregation of Duties

Consider option (b), "Segregation of duties." In computerized systems, it's vital to ensure duties are divided among individuals to prevent unauthorized access. For instance, separating authorization, record-keeping, and oversight functions helps maintain internal control. This control is needed to safeguard assets even more in automated environments.
04

Review Independent Internal Verification

Evaluate option (c), "Independent internal verification." This activity involves checks by independent personnel or automated checks within the system itself, which remain crucial for identifying errors or fraud. Therefore, this activity is relevant in both manual and computerized systems.
05

Evaluate Option (d)

Finally, consider option (d). Since all of the control activities鈥攅stablishment of responsibility, segregation of duties, and independent verification鈥攁re essential for strong internal controls, none are considered irrelevant in a computerized system. Thus, according to the explanation provided in previous steps, all activities are indeed relevant.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Establishment of Responsibility
The establishment of responsibility in a computerized accounting system is just as important as in a manual system. By clearly assigning tasks to specific individuals, an organization can easily determine who is accountable for a particular action or process. This clarity is vital because it helps in identifying the source of errors, should any arise.

In a computerized context, responsibility often revolves around tasks like data entry, managing updates, and monitoring systems. For instance:
  • Assigning a person to input financial data ensures that there is a clear point of contact for any discrepancies in those figures.
  • Designating someone to oversee system updates ensures that changes are implemented smoothly and correctly, with accountability for any potential system issues.
  • Clearly defined roles turn oversight into a controllable and transparent process, integral for audits and internal reviews.
Overall, without assigned responsibility, an organization risks confusion and errors, making it a crucial component of internal controls.
Segregation of Duties
Segregation of duties in computerized systems is a fundamental control activity that helps prevent fraud and errors. In such systems, it is not just about separating tasks physically but also involves controlling access and permissions digitally.

Here are some aspects of segregation in computerized environments:
  • Different individuals should be responsible for authorizing transactions, recording them, and handling assets. This minimizes the risk of unauthorized activities.
  • Roles should be set in the software to limit access to sensitive information based on a user's responsibilities and needs.
  • By dividing responsibilities, it is easier to track who accessed particular data, adding a layer of transparency and security.
This separation of duties acts as a crucial safeguard against internal threats and ensures that no single individual has control over all aspects of a transaction, maintaining the integrity of financial information.
Independent Internal Verification
Independent internal verification is an essential control activity that maintains the accuracy and integrity of financial information in a computerized system. Even though the main processes might be automated, regular checks and verifications help detect anomalies early on.

Some examples of this practice include:
  • Having independent personnel periodically review financial records and system logs for unusual activities or errors, ensuring that records match actual transactions.
  • Automated reports and alerts set up within the system can continuously monitor for deviations from established protocols.
  • Conducting regular audits helps evaluate the effectiveness of other controls and ensure adjustments are made when necessary.
Independent checks not only enhance the accuracy of financial reports but also reinforce other control activities, making them indispensable in maintaining robust internal controls.

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Most popular questions from this chapter

The principles of internal control do not include: (a) establishment of responsibility. (b) documentation procedures. (c) management responsibility. (d) independent internal verification.

Which of the following items in a cash drawer at \((L 04)\) November 30 is not cash? (a) Money orders. (b) Coins and currency. (c) An NSF check. (d) A customer check dated November 28 .

A company writes a check to replenish a \(\$ 100\) petty \((L O 2)\) cash fund when the fund contains receipts of \(\$ 94\) and \(\$ 4\) in cash. In recording the check, the company should: (a) debit Cash Over and Short for \(\$ 2\). (b) debit Petty Cash for \(\$ 94\). (c) credit Cash for \(\$ 94\). (d) credit Petty Cash for \(\$ 2\).

Which of the following is not an element of the fraud triangle? (a) Rationalization. (b) Financial pressure. (c) Segregation of duties. (d) Opportunity.

Which of the following was not a result of the Sarbanes-Oxley Act? (a) Companies must file financial statements with the Internal Revenue Service. (b) All publicly traded companies must maintain adequate internal controls. (c) The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. (d) Corporate executives and board of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.
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