Question

What are the physical and IT controls that address the risk of receiving incorrect items? Explain how each control helps in preventing the risk.

Answer 1

Physical Controls : Controls that encompass:

Ø The physical security of assets, including adequate safeguards such as secured facilities over access to assets and records.

Ø The authorization for access to computer programs and data files.

Ø The periodic counting and comparison with amounts shown on control records (for example, comparing the results of cash, security and inventory counts with accounting records). The extent to which the physical controls are relevant to the reliability of financial statement preparation, and therefore the audit, depends on circumstances such as when assets are highly susceptible to misappropriation.

IT Controls : With the advent of computers and enterprise resource planning (ERP) systems, it is much easier to embed controls through the system instead of being human dependent. The failure rate for IT embedded controls is likely to be low, is likely to have a better audit trail and is thus easier to monitor. For example at the stage of customer invoicing, application of correct rates in invoices or credit control can all be exercised directly through IT system improving control environment.