What is an example of a detective process control?

What is an example of a detective process control?

• A. Authorizations
• B. Approvals
• C. Reconciliation
• D. Segregation of Duties

Answer: (C)

In the context of process controls, a detective process control is designed to identify and detect issues or irregularities after they have occurred. Reconciliation exemplifies this type of control because it involves verifying and comparing two sets of records to ensure accuracy. For example, in accounts payable, reconciliation often takes place when comparing the company's records to vendor invoices or bank statements to confirm that the amounts match. When discrepancies are found during the reconciliation process, they can indicate potential errors or fraud that need to be addressed. This detection function is crucial for maintaining the integrity of financial reporting and ensuring that any issues are identified and corrected promptly. The other options, while they serve important roles in the overall control environment, function differently. Authorizations and approvals are preventive controls that aim to stop errors or unauthorized transactions before they occur, while segregation of duties is also a preventive control that minimizes the risk of fraud or error by ensuring that no single individual has control over all aspects of a financial transaction. Each type of control plays a specific role in an organization’s internal control system, but reconciliation distinctly falls under the category of detective process controls.

In the context of process controls, a detective process control is designed to identify and detect issues or irregularities after they have occurred. Reconciliation exemplifies this type of control because it involves verifying and comparing two sets of records to ensure accuracy.

For example, in accounts payable, reconciliation often takes place when comparing the company's records to vendor invoices or bank statements to confirm that the amounts match. When discrepancies are found during the reconciliation process, they can indicate potential errors or fraud that need to be addressed. This detection function is crucial for maintaining the integrity of financial reporting and ensuring that any issues are identified and corrected promptly.

The other options, while they serve important roles in the overall control environment, function differently. Authorizations and approvals are preventive controls that aim to stop errors or unauthorized transactions before they occur, while segregation of duties is also a preventive control that minimizes the risk of fraud or error by ensuring that no single individual has control over all aspects of a financial transaction. Each type of control plays a specific role in an organization’s internal control system, but reconciliation distinctly falls under the category of detective process controls.