What are the three types of internal controls?
The three main types of internal controls are preventative, detective, and corrective controls.
1) Preventative controls: Preventative controls are designed to prevent misstatements from occurring, whether due to fraud or error. Some examples of preventative controls include segregation of duties, access controls, physical controls, etc.
2) Detective controls: Detective controls are designed to discover mistakes made despite the existence of preventative controls. These controls are typically manual and relate to reviewing results. Examples include physical inventory observations, account reconciliations, and reviewing the budget to actual financial results.
3) Corrective controls: Corrective controls are less common than preventative or detective controls. Corrective controls are designed to take corrective action on discovered mistakes. Some examples include your credit card company blocking your credit card if they detect fraud, or a sprinkler system coming on when it detects smoke/fire.
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