Which of the following is an example of a preventive control in a company?

• A. Investigating variances between budgeted and actual expenses
• B. Reviewing monthly bank reconciliations for discrepancies
• C. Preparing financial statements at the end of each quarter
• D. Requiring employees to use unique passwords to access the accounting system

Answer: (D)

Verified step by step guidance

1. Understand the concept of preventive controls: Preventive controls are measures designed to stop errors or fraud before they occur. They focus on proactive actions to safeguard assets and ensure the integrity of financial data.
2. Analyze the options provided: Investigating variances, reviewing bank reconciliations, and preparing financial statements are examples of detective or corrective controls, as they identify or address issues after they occur.
3. Focus on the correct answer: Requiring employees to use unique passwords is a preventive control because it restricts unauthorized access to the accounting system, reducing the risk of fraud or data breaches.
4. Relate the concept to real-world practices: Preventive controls like password protection, segregation of duties, and access restrictions are commonly implemented in companies to ensure secure and reliable financial operations.
5. Conclude the reasoning: The correct answer is 'Requiring employees to use unique passwords to access the accounting system,' as it aligns with the definition and purpose of preventive controls.