Timeliness – The Most Misunderstood Word in Internal Controls
Published by maincompcen on October 6, 2018
Accounting and auditing literature are full of mentions about timeliness. Often this word is associated with the more project management-oriented definition of getting tasks done quickly, efficiently and prior to due dates. Paradoxically, the internal controls definition of this word does not necessarily mean fast but rather at the appropriate point in time.
When evaluating internal controls most people understand that people need to perform the control procedures. The timeliness factor is often seen as nit-picky and a minor detail. After all isn’t the important thing that the person performing the control procedure did so accurately? Some question, is our goal to be accurate or fast? These are the wrong questions to ask! The correct question when it comes to timeliness is whether the person performing the control procedures did so at the time the data was accurate, relevant and actionable.
Account reconciliations, journal entries, inventory counts, etc. all must be performed timelyfor the control to operate effectively. We can intuitively see that if a journal entry is approved six months after being made that the value of that control procedure is severely diminished. Several accounting periods have passed and if there was a problem the problem has likely compounded during this time.
Preventative controls especially must be performed on a timely basis. This is quite obvious as if the objective is to prevent a misstatement from occurring the control must operate prior to the transaction being recorded.
We should not forget about detective controls however. Detective controls are designed to identify an error or irregularity after it has occurred. These controls are performed on a routine basis to identify any issues that pose potential risks on a timely basis.
Some specific areas where timeliness of the control is especially important are:
Inappropriate Access to Assets – The access controls need to operate in advance to restrict access to physical objects, information, critical forms, and applications. Approvals of employee timecards – Managers need to approve employee resource time before being processed by payroll Review of financial statements – A review of financials needs to occur before the users of the financial statements make decision based on what is contained in them. This is not to say that the control should operate “on time” whether or not the information required to operate the control is present. A quick approval done at the wrong time with incomplete information is nowhere near as effective or desirable as a measured approval done with complete data. It is far better to have access to all the information required to operate the control that to attempt to “wing it” with the best data available.
A constant challenge for executives is to ensure that controls operate timely so that the full benefit is attained. Automated platforms are one of the best ways to ensure that control procedures are executed on time and with the best information available. Automation can also drive accountability by providing visibility into what control procedures have been performed and by whom.
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