Accounting

WHY?

Effective accounting controls are essential to ensure the accuracy, completeness, and timeliness of financial data. These controls help in preventing errors, misstatements, and fraud, and support proper decision-making based on reliable financial information.

HOW?

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1. Segregation of Duties

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[1-1] Responsibilities for general ledger maintenance are separate from those of subsidiary ledger control.
[1-2] Journal entry preparation is segregated from the approval function.
[1-3] Custody of assets is distinct from accounting responsibilities.
[1-4] Different personnel are assigned to review and approve financial reports from those preparing them.
[1-5] In electronic processing environments, separation of duties is maintained through system access controls.

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2. General Ledger Controls

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[2-1] Written procedures ensure that only authorized personnel can modify accounting principles or policies.
[2-2] A formal organization chart defines reporting lines and responsibilities, ensuring clarity in accounting functions.
[2-3] The principal accounting employee oversees accounting records at all locations.
[2-4] Regular reconciliations of the general ledger with subsidiary ledgers and other records ensure accuracy.
[2-5] Source documents (e.g., invoices, contracts) are maintained to provide an audit trail.
[2-6] The usefulness and reliability of internal financial reports are regularly evaluated.
[2-7] All journal entries are reviewed, approved, and documented with adequate descriptions or supporting documents.

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3. Periodic Reviews and Reconciliations

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[3-1] Monthly and quarterly reconciliations of accounts are conducted to ensure the accuracy of balances.
[3-2] Regular reviews of key estimates (e.g., reserves, allowances) are performed to ensure they reflect current conditions.

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4. Closing Controls

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[4-1] Procedures for period-end closing ensure that all relevant transactions are recorded within the reporting period.
[4-2] A formal closing schedule is followed to ensure timely and orderly closing of accounts.
[4-3] Valuation reserves and key estimates are reviewed and approved during the closing process.

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Q&A

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Q1: Why is general ledger control essential?

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Q2: : How often should reconciliations be performed?

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Q3: What are the risks of inadequate accounting controls?

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