ACCA Audit and Assurance (F8) Practice Exam

Which of the following internal controls involves examining records and reports for discrepancies?

1. Observation

2. Reconciliation

3. Segregation of Duties

4. Approval processes

The correct answer is: Reconciliation

Reconciliation is a crucial internal control process that involves examining and comparing records and reports to identify and resolve discrepancies. This process ensures that the amounts recorded in one set of records align with those in another, such as comparing bank statements with the company’s cash records. By regularly reconciling accounts, discrepancies can be detected early, minimizing the risk of error or fraud and ensuring accuracy in financial reporting. This internal control is vital because it helps to verify the integrity of financial data. If the records do not match, it prompts further investigation to understand the cause of the difference, which is a critical step in maintaining accurate financial records and accountability within an organization. In contrast, observation involves watching processes as they occur, while segregation of duties focuses on dividing responsibilities among different individuals to reduce risk. Approval processes refer to gaining consent for transactions or decisions rather than actively examining records for discrepancies. All these controls serve important functions, but reconciliation specifically addresses the need to verify consistency between records, making it the most relevant answer in this context.