Question

According to SAS 78, an effective accounting system performs all of the following except?

1) identifies and records all valid financial transactions
2) records financial transactions in the appropriate accounting period
3) separates the duties of data entry and report generation
4) records all financial transactions promptly

Answer 1

SAS 78 describes functions of an effective accounting system but does not specifically require separating data entry and report generation duties. Separation of duties is a general internal control principle, but not a function performed by the accounting system per SAS 78.

Step-by-step explanation:

According to SAS 78, an effective accounting system performs many functions but it does not specifically require the separation of duties related to data entry and report generation. The purpose of SAS 78 is to outline the necessary components that make up the internal controls within an accounting system. It emphasizes the importance of a system that:

• Identifies and records all valid financial transactions.
• Records transactions in the correct accounting period.
• Records all financial transactions promptly.

However, while separation of duties is a fundamental principle of internal controls to prevent fraud and errors, it is not explicitly listed as one of the functions performed by the accounting system in SAS 78. Instead, the separation of duties is a broader control activity that may be considered as part of the entity's control environment.