Prevent, Detect, and Correct – Internal Controls
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
Every internal control exists to do one of three things to an error: stop it before it happens, catch it after the fact, or clean it up once it's caught. The exam calls these preventive, detective, and corrective controls.
Picture a customer with poor credit trying to buy on account, which would create an accounts receivable balance the company might never collect.
What is a preventive control?
A preventive control stops an error before it ever enters the system. For the poor-credit customer, that's a control that automatically denies the credit request before the order is ever recorded.
What is a detective control?
A detective control catches an error that has already happened and already made it into the system. Say the poor-credit customer slips through and gets approved by mistake — a detective control is what later flags that approval so someone can act on it.
What is a corrective control?
A corrective control fixes an error that's already been identified. Once the bad approval is flagged, a corrective control might automatically cancel that customer's purchase order, removing the error from the system.
Same error, three different points of attack. Preventive stops it before entry, detective flags it after entry, corrective cleans it up once it's flagged. A mature control environment layers all three rather than relying on just one.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 90 on AUD. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.