Question

Q1. If detective controls signal error flags, why shouldn’t this type of controls automatically make a correction in the identified errors? Why are corrective controls necessary?

Q2. Distinguish between the sales order, billing, and accounts receivable departments. Why can’t the sales order or accounts receivable departments prepare the bills?

Q3 Why is access control over revenue cycle documents just as important as the physical control devices over cash and inventory?

Answer 1

1. Thera are three types of internal control :- Preventive, Corrective and Detective controls. Corrective controls are used to restore the process back to state prior to the harmful event. These controls take some actions to reverse all effects of error detected.

The corrective controls are necessary because:-

1.When an error is detected, at least one or more than one possible corrective solution may be avaialble.

2. For example:- If quantity = 10 units and price= $6 and total = $600. If the total is changed to $60 instead of $600, it is directly presumed that the values of quantity and price are correct, which may not be the correct assumption.

3.At the detection level,only the error is identified but the real reason of the problem is not determined.

4.When an automated response is linked to a detected error,it may cause a bigger error than the original one as the actual problem may not be identified. From the above example, if the total is changed to $60 as a corrective automated response when actually it is the quantity which was wrongly entered.(6 instead of 60)

2. The difference is as follows:-

Sales order	Billing	Accounts receivable department
1.The function of sales order department is to take the order from customer and places it into specific format.	1. The sales order department sends the copy of sales order to the billing department.	1.The sales department sends the sales order to receivable department and then it make entry to the accounts receivable subsidiary ledger.
2. This department stores information such as name of the customer, address, account number, quantity,and units of each product, discount etc.	2. When it receives the shipping notice and the stock release document, then it starts preparing the sales invoice.	2. As payment suggestions are received,they are noted down to the customer's account in the account receivable subsidiary ledger.

3. Access control is the electronic framework of an organization. They are intended to control through a system and they ought to have an entrance to a network.

Access control is more important as compared to the revenue cycle documents because of the following reasons:-

Access control is important because the resources can be more effectively and efficiently utilized by the persons who have direct access to the data. This will lead to economies of scale.