ACCA Applied Knowledge · Business and Technology · Internal controls
An exception report produced by Hale Co's inventory system lists only items where the physical count differs from system records by more than 5%. What is the main benefit of this type of report for monitoring controls?
The main benefit is that an exception report focuses management's attention on significant deviations, here count differences above 5%, so they can investigate promptly and efficiently. It supports management by exception, but it does not remove the need for counts or guarantee that no theft has occurred.
- AIt directs management's attention to significant deviations so they can investigate promptlyCorrect
- BIt removes the need for any physical inventory counts
- CIt guarantees that no inventory has been stolen
- DIt shows all transactions in full detail for every item
Explanation
Exception reports highlight items outside set tolerances, allowing management by exception and efficient investigation. They do not remove the need for counts, cannot guarantee against theft, and by design they do not list every transaction.
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