Controls

Controls

1. Overview of Controls

   • The elements of control include (1) establishing standards for the operation to be controlled, (2) measuring performance against the standards, (3) examining and analyzing deviations, (4) taking corrective action, and (5) reappraising the standards based on experience
   • Controls must be subject to the cost-benefit criterion.
   • statements best describes the relationship between planning and controlling......Controlling cannot operate effectively without the tools provided by planning
   • A control is “any action taken by management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved”
   • best describes the concept of control as recognized by internal auditors?... Management takes action to enhance the likelihood that established goals and objectives will be achieved.
   • Comparison of actual performance against a standard provides information for assessing quality of performance.
   • Control processes are most directly designed to ensure that risks are contained
   • Assignment of responsibility for deviations is not implied by the definition of control

2. Classifying Controls

   • Directive Control are..The objective of directive controls is to cause or encourage desirable events to occur,
   • Preventive Controls is It is intended to deter undesirable events from occurring
     • Preventive controls are actions taken prior to the occurrence of transactions with the intent of stopping errors from occurring.
   • Feedforward controls anticipate and prevent problems. Policies and procedures serve as feedforward controls because they provide guidance on how an activity should be performed to best ensure that an objective is achieved.
     • systems development analysis.
   • A feedback control measures actual performance, i.e., something that has already occurred, to ensure that a desired future state is attained. It is used to evaluate past activity to improve future performance. A variance is a deviation from a standard. Hence, variance analysis is a feedback control.
     • It is used to evaluate the past to improve future performance.
       • Inspection of completed goods
     • The use of financial statement analysis, quality control procedures, and employee performance evaluations are all examples of Feebback Controls,
   • Feedforward controls provide for the active anticipation of problems so that they can be avoided or resolved in a timely manner. Another example is the quality control inspection of raw materials and work-in-process to avoid defective finished goods.
   • Operating controls are those used in the management processes of directing and controlling and are based on comparison of results with standards. As an activity becomes less mechanical, however, standards become more difficult to determine. Control standards for security, for example, are less easily developed than for the output per hour of a machine because the degree of security achieved is not readily measurable
   • Detective control, detects and attempts to correct an undesirable event that has occurred. It is also active because it takes a conscious intervention by the clerk to ensure the documentation is received.
     • Goods received are counted and compared with quantities on purchase order and receiving reports
   • Controls may be preventive (to deter undesirable events from occurring), detective (to detect and correct undesirable events which have occurred), or directive (to cause or encourage a desirable event to occur). “Reactive” is not a specified type of control. However, controls may be reactive in the sense that they detect an undesirable event and react to it or correct it.