What Is a Detective Control?

Detective control is an accounting term that refers to a type of internal control intended to find problems within a company's processes once they have occurred. Detective controls may be employed in accordance with many different goals, such as 澳洲幸运5官方开奖结果体彩网:quality control, fraud prevention, and legal compliance. One example of a deౠtective🦂 control is a physical inventory count, which can be used to detect when actual inventories do not match those in accounting records.

In small firms, internal controls can often be implemented simply through management supervision. At large firms, however, a more elaborate system of 澳洲幸运5官方开奖结果体彩网:internal audits and other forꦑmalized safeguards is often required to adequately ♛control the company's operations.

Understanding a Detective Control

Internal controls are 澳洲幸运5官方开奖结果体彩网:accounting and auditing processes employed by a company’s finance department. Thཧey ensure the company’s financial reporting is in order and that laws and regulations are being complied with. They also help to ensure budgets are adhered to, policies are followed, and capital shortages are identified.

There are two main types of internal controls: preventive and detective. Preventive controls are designed to prevent issues or losses from oc🗹curring. Detective controls are the second line of defense. They identify errors and issues after they occur so that corrective action can be taken.

Detective conꦬtrols generally involve reviewing accounts and data. Reconciliation, which involves comparing two sets of data 🐬to spot discrepancies, is a crucial part of the process.

Examples of detective controls include:

• Physical inventories: Counting cash or inventory.
• Reviewing transactions: Making sure all expenditures have been properly logged and approved.
• Performance reviews: Comparing budgets and KPIs to results.

Detective Control vs. Preventive Control

In contrast to detective controls are preventive controls. While detective cont♐rols may uncover losses after they occur, preventive controls are designed to keep them from occurring in the first place.

Preventive controls are considered to be more pragmatic, as they are put in place to prevent any problems from occurring and, as such, aid in helping to prevent los🎀ses or other negative outcomes. Detective controls are after the fact, so if the issues they uncover are not remedied quickly, it can lead to additional losses to the losses already incurred.

Sarbanes-Oxley Act

The presence of adequate internal controls is important to investors as an assurance that financial and other disclosures are accurate, and that they are not being defrauded by managers or employees. In the U.S. in the early 2000s, there was a slew of accounting scandals in various companies, such as Enron and WorldCom, that led to the need for more stringent controls, which were finally enacted under the Sarbanes-Oxley Act of 2002.

The 澳洲幸运5官方开奖结果体彩网:Sarbanes-Oxley Act of 2002 imposes a variety of legal requirements on public companies that are designed to ensure that firms have adequate controls in place. The Act focuses on four key areas: corporate responsibility, increased criminal punishment, accounting regulation, and new protection.

Companies are meant to regularly evaluate the effectiveness of the controls in relation to the Act. External auditors are also required to evaluate the effectiveness of internal controls over financial reporting.

The Bottom Line

Accounting anomalies and errors happen, even 🦹with preventive controls in place, and it’s important to react quickly to them before the damage worsens and the law is broken. That’s the job of detective controls. This type of internal control is tasked with getting to the bottom of problems in a company’s processes by reviewing transactions, comparing budgets to results, checking inventories, and so on.