Reference no: EM132782841

The following are key controls for ABC company.

Key control 1: Every customer must complete an credit application in order to be approved for credit. Credit limits are set based on the results of the credit check and the judgment of the credit manager. The results of the credit application and a Form 21(e) are both saved in the customer file. Form 21(e) is what the credit manager signs off onto authorize the granting of credit for the customer and the specific amount of credit, which ranges from $5,000 to $75,000.

Key control 2: The authorized credit limit set for each customer is set up as part of the customer account in the sales component of the accounting information system at ABC. If a sale would result in the credit limit being exceeded, the sale cannot be processed unless the credit manager overrides it. The system is set up so that only the credit manager can override this control.

Key control 3: Each month, an exception report is generated that lists each instance of credit override. This report is submitted to the accounting manager for approval.

Problem 1: For each key control, are they preventive or detective control?

Problem 2: What procedures can be used to test each control?