One of the most important but least attended aspect of Internal Controls for Financial Reporting (ICFR) is the identification, documentation, and testing of suitable application controls, also referred to as Business Application Controls or Automated Controls.
These controls differ from Information Technology General Controls (ITGCs) in that they address control objectives at the business process level, rather than the IT infrastructure level.
For instance, a data validation check when entering a sales order to ensure that it matches the corresponding product master record constitutes an application control. Application controls are designed to mitigate risks associated with business processes and transactions, thereby ensuring the accuracy and reliability of financial reporting.
There exist two primary categories of application controls:
Configurable Controls; and
Non-Configurable Controls.
Configurable controls should be incorporated into the regular internal testing cycle as part of a comprehensive risk assessment.
In contrast, non-configurable controls must be tested during user acceptance testing (UAT) when new functionality is implemented or modified within the ERP (Enterprise Finance Application e.g SAP etc.)
For organizations seeking to enhance their understanding of application controls and implement effective ICFR procedures, we invite you to contact us for a complimentary, no-obligation consultation. Our expert guidance will provide valuable insights into identifying, documenting, and testing application controls that are tailored to your organization's specific needs.
There is more to ICFR 101; stay tuned!