Distinguish between entity level controls and transactional controls.Give an example of each.

Question

Quizplus · Accepted Answer

The Answer is Entity-level controls are controls that are implemented for multiple transaction cycles or for the entire organization.
Entity-level controls contribute to the "tone at the top" and establish expectations in the control environment.Entity-level controls are often less tangible but they form the foundation on which other internal controls are built.Entity-level controls such as controls over management override,period-end reporting,hiring competent staff,and fraud-risk controls have an impact on all other control processes.If these entity-level controls are weak or unreliable,the best designed transaction controls will not be effective in preventing key risks such as management override.
Transaction controls are controls that are implemented for specific transaction risks and are designed to specifically prevent or detect and correct misstatements in classes of transactions,account balances,or disclosures and their related assertions.
The accuracy of the results of the accounting system (the account balances)is heavily dependent upon the accuracy of the inputs and processing (the transactions).For example,if products sold,units shipped,or unit-selling prices are incorrectly billed to customers for sales,both sales and accounts receivable will be misstated.If controls are adequate to ensure that billings,cash receipts,sales returns and allowances,and charge-offs are correct,the ending balance in accounts receivable is likely to be correct.

Distinguish Between Entity Level Controls and Transactional Controls