Answer to Question #320041 in Macroeconomics for Jen

Question

Explain the association of the following diagram (hints: the association has directions; from sales order to customers, and from customers to sales orders)?

What is segregation of duties and why internal controls need segregation of duties?

Answer 1

Segregation of Duties is internal control in a business intended to safeguard financial transactions from fraud and errors. To do this, SoD assures that at least two people are in charge of executing a vital job that has financial ramifications or has the potential to affect financial reporting. SoD procedures divide work into many tasks that a single person can accomplish. The idea is to keep control out of one person's hands by breaking the transaction into two or more components or needing sign-off consent from another party before it is completed.

WHY SOD

The idea behind Segregation of Duties is that the responsibility of operating a firm should be distributed among numerous persons so that no one person has the authority to harm the business or engage in fraudulent or illegal activities. The separation of tasks is a crucial aspect of risk management and is related to SOX compliance.