What are the two main categories of internal controls?

The two main categories of internal controls are categorized as preventative and detective. Understanding these two types of controls is vital for maintaining the integrity of financial processes and safeguarding assets within an organization.

Preventative controls are designed to deter errors or fraud from occurring in the first place. They are proactive measures that establish a framework to minimize the risk of undesirable events affecting the company's operations. Examples include procedures like authorization requirements, separation of duties, and employee training.

Detective controls, on the other hand, are implemented to identify and detect errors or fraud after they have occurred. Their purpose is to identify discrepancies or issues that might have slipped through preventative measures. Examples include regular audits, reconciliations, and monitoring of transactions for unusual activities.

By effectively utilizing both preventative and detective controls, organizations can create a robust internal control environment that helps prevent losses and ensures compliance with laws and regulations. This focus on prevention combined with the capability to detect issues creates an effective internal control system that is essential for sound financial management.

The other options mentioned do not represent the fundamental categories recognized in internal control frameworks. While process and system, primary and secondary, or financial and operational may describe various aspects of controls or functions within an organization, they do not define the primary classifications used to categorize