Question

Which of the following control activities is not relevant to when a company uses a computerized (rather than manual) accounting system? a. Establishment of responsibility. b. Segregation of duties. c. Independent internal verification. d. All of these control activities are relevant to a computerized system.

Short answer

d. All of these control activities are relevant to a computerized system.

Step-by-step solution

Identify the question objective

The question asks us to determine which control activity is not relevant in a computerized accounting system. We need to evaluate each option to determine if it is still relevant when a system is computerized.

Evaluate control activity a

'Establishment of responsibility' involves assigning specific tasks to specific individuals. In a computerized system, this control helps ensure that transactions can be traced back to the responsible individual, maintaining accountability.

Evaluate control activity b

'Segregation of duties' requires different individuals to perform different tasks such as inputting information and approving transactions. This control helps prevent fraud and errors and remains important in computerized systems.

Evaluate control activity c

'Independent internal verification' involves review and verification of data processed by a different individual or group to ensure accuracy and completeness. This control activity is also important in computerized environments to ensure system integrity.

Consider option d

Option d states that all control activities are relevant to a computerized system. Based on the previous steps, each control activity serves a purpose even in a computerized setting. Thus, they are all relevant.

Key concepts

Control Activities

Control activities are essential tools that help a company safeguard its assets and ensure the accuracy and reliability of accounting records. These activities are designed to enhance the efficiency and effectiveness of an organization's operations. In a computerized accounting system, control activities continue to play a critical role. Although technology can help automate many processes, control activities help monitor and verify that these processes run correctly and ethically. Some common control activities include:

• The establishment of responsibility: Assigning specific duties to individuals to clearly define accountability.
• Segregation of duties: Distributing tasks among different individuals to reduce the risk of errors and fraud.
• Independent internal verification: Having different individuals review work to check for accuracy and completeness.

It is important to remember that even in automation, these controls can prevent misuse or errors effectively. They help create a robust framework that supports reliability and accountability in the financial processes.

Segregation of Duties

Segregation of duties is a vital control activity within any accounting system, whether computerized or manual. It is based on the concept that no single individual should control all aspects of a financial transaction. This division of responsibilities is crucial for preventing fraud and errors. For example:

• One person might enter transaction details (inputting information).
• Another person would approve the transaction to ensure it's correct and appropriate (authorizing).
• A third person could handle the transaction itself or record it into the appropriate accounts.

In a computerized system, the automation of processes might seem to lessen the need for segregation of duties, but in fact, it's equally important. Technological systems can be manipulated if one person has too much control, so using different access controls and user permissions within the system can maintain this necessary separation. With proper segregation of duties, an organization can prevent unauthorized actions, reduce the risk of errors, and maintain a high level of integrity and trust in its financial reporting.

Internal Verification

Internal verification is a critical process in ensuring the accuracy and completeness of financial records. In any accounting system, mistakes can be made or data can be mismanaged, which is why internal verification exists as a checkpoint for reliability. The process involves an independent check conducted by an individual or group separate from those involved in the original transaction or processing. This means that once data is inputted and processed, another person or team reviews it to validate its accuracy. Although automated systems might process transactions at a rapid pace, internal verification remains necessary. Here are a few ways it can be implemented:

• Conducting regular audits of the system logs and transactions.
• Having periodic reconciliations of accounts by different staff members.
• Using software tools that flag discrepancies or unusual transactions for human review.

Ultimately, internal verification builds an extra layer of scrutiny, ensuring that even in a technological environment, errors and fraud can be quickly identified and corrected. This supports the company in maintaining accurate financial reporting and decision-making.