Application Controls

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Application Controls
- - consist of manual and
automatic procedures that
relate to specific accounting
systems such as payroll,
accounts, receivable and cash
disbursements.

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Application Controls
- the purpose is to ensure an
acceptable level of internal
control in each accounting
system.
- these are located in each of the
data processing functions of
input, processing and output.
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Application Controls
A. Controls methodology
B. Audit trail
C. Data entry controls
D. Processing controls
E. Output controls

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A. Controls Methodology
- a description of the role that
controls play in accounting
systems.
- auditors must make a series of
evaluation and determination
before the usefulness of controls
can be defined.

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A. Controls Methodology
- Steps to determine the usefulness of
controls:
1. Determine the likelihood of
exposures resulting from errors and
irregularities.
2. Set broad management control
objectives translated into system
objectives.
3. Evaluate the role that controls play in
an accounting system.
1. Determine the likelihood of exposures
resulting from errors and irregularities:
a. Unreliable data
b. Improper processing
c. Loss or destruction of assets and
records
d. Failure to accomplish organizational
objectives
e. Operational inefficiency
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2. Set broad management control
objectives translated into system objectives
Management Objective System Objectives

1. To provide a. Completeness
b. Accuracy
reliable data c. Uniqueness
d. Reasonableness
e. Errors are
detected,
corrected, and
resubmitted.
2. Set broad management control
objectives translated into system objectives
Management Objective System Objectives

2. To encourage a. Timeliness
adherence to b. Valuation
prescribed c. Classification
accounting
policies
2. Set broad management control
objectives translated into system objectives
Management Objective System Objectives

3. To safeguard a. Transaction
authorization
assets and
b. Distribution of
records output
c. Validity
d. Security of data
and records
Application Controls
A. Controls methodology
B. Audit trail
C. Data entry controls
D. Processing controls
E. Output controls

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B. Audit trail
- consists of the input,
processing and output
documentation and file data that
permit the tracing of transaction
processing.

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Application Controls
A. Controls methodology
B. Audit trail
C. Data entry controls
D. Processing controls
E. Output controls

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C. Data entry controls
Risk controllable during data entry:
a. Unreliable data
i. Omission
ii. More than once
iii. Inaccurate data

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C. Data entry controls
Risk controllable during data entry:
b. Non-adherence to accounting
policies
i. Wrong accounting period
ii. Improper valuation or
classification
c. Loss of assets and records
i. Unauthorized/invalid
transactions
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C. Data entry controls: prevention and detection
Prevention Controls
a. Computer assisted procedures
> screen formats and
computer dialogue
Detection Controls
a. Data entry validation tests
b. Record confirmation check
c. Data approval test
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Application Controls
A. Controls methodology
B. Audit trail
C. Data entry controls
D. Processing controls
E. Output controls

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D. Processing Controls
Risk controllable during processing:
a. Unreliable data
i. Incorrect calculations
ii. Incorrect processing logic
iii. Use of wrong file / record

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D. Processing Controls
Risk controllable during processing:
b. Adherence to accounting
policies
i. Wrong version of the
program
c. Loss of assets and records
i. System generated
transactions and financial entries may not
be in accordance with agreed policy.
D. Processing Controls: prevention and detection
Prevention Controls
a. General controls
Detection Controls
a. Arithmetic accuracy test
i. Double arithmetic, e.g.,
reverse multiplication
ii. Overflow check
b. Dual field input
c. Run-to-run totals
D. Processing Controls
Correction Control
a. Errors corrected and processed
with current job
b. Errors removed and corrected
subsequently
c. Errors discovered subsequent to
processing
- Corrected through
adjusting entry
Application Controls
A. Controls methodology
B. Audit trail
C. Data entry controls
D. Processing controls
E. Output controls

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E . Output Controls
Risk controllable during data processing
output:
a. Unreliable data
i. Output received by the
user may be inaccurate or
incomplete
ii. Non-adherence to
accounting policies
iii. Improper classification
and valuation
E . Output Controls
Risk controllable during data
processing output
b. Loss of assets and records
i. Distribution or display to
unauthorized individuals
c. Prevention Controls
ii. Distribution checklist
and schedule
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E . Output Controls: prevention/detection/correction
Prevention Controls
i. Distribution checklist and
schedule
Detection Controls
i. Review of the checklist
and schedule
Correction Controls
i. Should be corrected at
source
Application Controls
A. Controls methodology
B. Audit trail
C. Data entry controls
D. Processing controls
E. Output controls

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