Information technology controls are typically categorized as general controls or application controls. General controls are common to all applications, while application controls are specific to individual systems.
Both types of controls play an important role in ensuring the accuracy and reliability of financial reporting.
So, which one is more important?
Let’s take a closer look at the differences between these two types of controls.
1) General control is a broad concept that includes all the policies and procedures that an organization puts in place to ensure its financial statements are accurate.
General control is an invaluable resource in ensuring accurate financial statements, but depending on the organization’s size, more specific types of control are available to improve accuracy.
Smaller organizations often employ manual controls such as hands-on reconciliations and dual signature requirements.
On the other hand, larger corporations have access to more sophisticated technologies, such as automated systems and real-time monitoring.
By choosing a type of control tailored to their size and resources, organizations can experience the greater assurance that their financial statements are being accurately prepared and reported.
2) Application control is a more specific type of control that relates to the systems and processes used to generate financial data.
Application control is much more nuanced than traditional methods; it deals with managing and monitoring software applications used to generate financial information.
This enhanced level of scrutiny ensures the security of financial data and the accuracy of reports produced for stakeholders and other related entities.
Compared to the sheer number of potential manual errors likely to arise from relying on non-automated tracking processes, application control offers an ideal tool to reduce inaccuracies and improve data accuracy.
3) General controls are typically put in place by management, while IT staff usually implements application controls.
Management is often responsible for setting general controls in place, helping to ensure that a business or organization runs smoothly and according to the established standards of practice.
These controls may range from developing a code of conduct to implementing financial processes, essentially, any broad policy initiatives that establish expected outcomes.
In contrast, IT staff typically handle application controls, who build and configure more specific systems and programs to ensure data remain secure and accurate on an individual level.
It’s a two-pronged approach with both general and application controls necessary to maintain control of information technology assets within an organization.
4) General controls include things like segregation of duties, access control, and approval processes. Application controls include system validation, input/output controls, and change management procedures.
There are two main types of controls in IT: general and application. General controls cover high-level principles such as keeping roles separate, limiting user access to only what they need, and having others check work before approval.
Meanwhile, application controls focus on the technical elements of an IT system, including validation of functionality and structures, reviewing incoming data files and outputs, and tracking modifications to ensure they are authorized.
They are different yet complementary approaches that complement each other to create a solid measure for managing risk without compromising efficiency.
5) Both types of controls are important for ensuring the accuracy of financial statements. However, application controls are generally more effective at catching errors and preventing fraud than general controls.
It is well-known that both types of control are essential for guaranteeing the reliability of financial statements, but studies have shown that application controls have a much more pronounced effect on detecting mistakes and curtailing fraud than general controls.
This is because application controls are designed to restrict access to authorized personnel with dedicated roles and tasks instead of providing a broad overview of the system as general controls do.
Meanwhile, by precisely monitoring certain activities within the system and producing audit trails when changes are made, application controls can provide a far superior level of precision in identifying suspicious activity or information discrepancies.
For this reason, organizations should ensure that their commitment to controlling accuracy includes investing in the appropriate security tools.
General controls are policies and procedures put in place by management to ensure the accuracy of an organization’s financial statements.
Application controls, more specific to systems and processes used to generate financial data, relate to input/output controls and change management procedures.
General controls include segregation of duties, access control, and approval processes while being less effective at catching errors and preventing fraud than application controls.
Both types of control aim to maintain accurate financial statements, but application controls tend to be more reliable.