Accounting controls refer to the methods and procedures that a company or an accounting firm in Singapore would use to ensure the accuracy and validity of the financial statements. Business owners should apply these controls as protection for the company. These controls are not related to rules and regulations as well as the laws.
If a company has adopted the accounting controls, the controls should be able to increase the compliance and efficiency throughout the organisation. Also, it ensures the accuracy of the financial statements when the company presents them to bankers, auditors (Also see The Advantages and Limitations of Statutory Audit), investors, as well as its stakeholders. However, note that there are no control policies that are suitable for all the entities. The application of the accounting controls should suit the company’s needs, goals, types of business activities and other aspects.
There are three different types of accounting controls, which are preventive controls, detective controls and corrective controls.
Preventive controls are the controls (Also see An Overview of Internal Controls) that the company would apply daily to prevent errors mistakes or discrepancies from occurring. These controls are what the employees need to comply with when they are performing their tasks. As an instance, when a staff has issued an invoice, another person will review it and gives approval. Then, another team will make the payment. This is known as segregation of duties and such a system prevents a person from having the right to issue and pay the invoices at the same time.
Besides, companies may implement job rotation as one of the preventive controls. The company may transfer the staff from one department to another regularly. This will normally be practised by big firms and organisations. Job rotation helps to ensure that no one will be able to access any information for a long period. Thus, the staff will not be able to carry out illegal activities or thefts.
Another accounting control that business owner should adopt in their business is the detective control. These controls play a role in detecting any frauds, deviation and discrepancy from the policies that the company has applied. The company may also perform it as a measure of conducting integrity check. For example, the company may conduct a surprise check on the cash balance (Also see The Income Statement and the Balance Sheet) that the cashier has in hand and the cash balance recorded in the accounts. This is to check whether the cashier has performed his job properly, and this may also help in detecting if there are any accounting errors.
If both the preventive control and detective control have failed to prevent errors from happening, the corrective controls would be those that will come to rescue. When the accountants are doing the accounting tasks, they may post an adjusting entry to rectify any mistake, and this is an example of the corrective controls. Another example would be the auditors have found an error in the account (Also see An Overview of Suspense Account) books that should be corrected after a financial year, where the company has closed its books. In this case, the company may perform the corrective control by reopening the books and making the adjustments according to the requirement of the auditors.