ACC 556 Week 3 Discussion – Internal Controls


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Please respond to the following:

  • Identify
    and discuss the six principles of control activities. Suggest the two
    most important principles for an online retail business versus a
    brick-and-mortar retail business. Provide support for your rationale.

Be sure to respond to your classmate’s post below:

The six principles of control activities are as follows.

Establishment of responsibility: Assign
responsibility to specific employees. Most effective when only one
person is responsible for a given task. Often requires limiting access
only to authorized personnel, and then identifying those personnel

Segregation of duties: Different individuals should
be responsible for related activities. Responsibility for record-keeping
for an asset should be separate from physical custody of that asset.
The work of one employee should, without a duplication of effort,
provide a reliable basis for evaluating the work of another employee

Documentation procedures: Documents provide evidence
that transactions and events have occurred. For example, point-of-sale
terminals are networked with a company’s computing and accounting
records, which results in direct documentation. Documents should be
promptly forwarded for accounting entries to the accounting department
to ensure timely recording and ensure the accuracy and reliability of
the accounting records.

Physical controls: the safeguarding of assets and
enhancing the accuracy and reliability of the accounting records. For
example, safes, locks on warehouses and cabinets, passkey or
fingerprint access to computers, alarms, television monitors, and time
clocks, as shown here.
Independent internal verification: Involves
the review of data prepared by employees. Useful in comparing recorded
accountability with existing assets. To obtain maximum benefit
independent employees should verify records periodically or on a
surprise basis also, report discrepancies to management

Human resource controls: Bond employees who handle
cash.Involves obtaining insurance protection against theft by employees.
Rotate employees’ duties and require vacations. Deters employees from
attempting thefts since they will not be able to permanently conceal
their improper actions. Conduct background checks

The two most important principles for an online retail business vs. a brick-and-mortar retail business are:

(1) Segregation of Duties is crucial for both online and
brick-and-mortar retail businesses, but it might be even more critical
for online retailers. In an online environment, many critical functions,
such as processing online orders, handling customer data, and managing
payment processing, are often conducted electronically. Segregating
these duties helps reduce the risk of fraud and ensures that multiple
people are involved in critical processes, enhancing accountability and

(2) Physical Controls: While physical controls are traditionally
associated with brick-and-mortar retail businesses, they are also
relevant for online retailers. Online retail businesses need to focus on
the physical security of their data centers, servers, and inventory
storage facilities. Protecting these physical assets is essential to
ensure the integrity and availability of online services and customer
data. All six principles of control activities are important,
segregation of duties and physical controls are particularly crucial for
both online and brick-and-mortar retail businesses.


Kimmel, Paul D., et al. Accounting Tools for Business Decision Making. 8th ed., Wiley, 2022.

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