Question

Based on your understanding of preventative and detective controls, provide ane example of a preventative and a detective control for the revenue cycle.

Answer 1

Preventive controls are internal controls that are designed in order to prevent any loss or fraud from occurring i.e they prevent the happening of this fraud or error itself

Detective controls are internal controls designed to identify problems that already exist i.e they focus on identifying the fraud , error or loss after it has occurred.

An Example of Preventive Control is as follows:Examples include

1. Preventing or not allowing the same person from performing transactions that are related to each other such as initiating and recording the transactions: When sales are made on made then no single person should be given the responsibility of recording the receipt of money and the issuing of credit memos because then the person might cover up their fraud by taking thed money and issue a credit memo as well.
2. The sales that are done on credit basis: The terms of credit should be reviewed before the transaction of sale is completed.

An Example of Detective Control is as follows: Examples include

1. There should be a good communication with the customers so that any customer or client is identified to whom the product has been sold to understand whether his complaint has been resolved in order to ensure that all customer complaints have been addressed.
2. Sample out some sales invoices in order to ensure that the prices and the terms of the sale are as per what is stated in the authorized price list prevailing.