If you’re in business, especially running or managing finances, the terms “key controls” and “non-key controls” might sound technical, but understanding them is simpler than you think. At Cooper Norman, we believe in making auditing straightforward and helping our clients protect their businesses from unnecessary risks. Let’s break down the basics of key and non-key controls and why they’re essential in auditing.
What Are Key and Non-Key Controls?
In auditing, controls are safeguards or “checks” put in place to ensure that a company’s financial processes are reliable and accurate. Think of them as steps that make certain tasks are done right and that any errors or risks are caught before they become big issues.
- Key Controls: These are the most important. Key controls are designed to tackle significant financial risks head-on. In other words, if a key control fails, there’s a high chance that something serious could go wrong, like a material misstatement in your financial records. Auditors focus closely on key controls because these are the “must-haves” to keep finances accurate and compliant.
- Non-Key Controls: These controls are also helpful but not essential for addressing major financial risks. Non-key controls add a layer of support but don’t directly impact the biggest risks to the company’s financial reporting. While still important, non-key controls don’t have as much impact if they fail because they aren’t tackling those high-stakes areas.
Why Do Auditors Focus More on Key Controls?
Auditors prioritize key controls during an audit because these are what safeguard a business from potentially costly or reputation-damaging errors. Here’s an example: Imagine your business processes high volumes of transactions each day. A key control here might be verifying large transactions to prevent unauthorized expenses. If this control fails, it could lead to significant financial losses. So, auditors will spend time testing this control thoroughly.
On the other hand, a non-key control could be something smaller, like checking that expense reimbursements under a certain amount are filed correctly. If this control slips, it’s not as likely to cause a major problem.
Key and Non-Key Controls in Action
Imagine you own a retail business. Here’s how key and non-key controls might work together in your financial systems:
- Key Control Example: Approving every purchase over $1,000. This is a key control because it prevents large unauthorized expenses from slipping through. Auditors will test this to make sure there’s a strong process in place to approve these expenses.
- Non-Key Control Example: Monitoring office supply expenses under $100. While still good practice, missing this step likely wouldn’t lead to serious financial consequences, so auditors might not focus as closely on this.
How Cooper Norman Helps You Manage Controls
At Cooper Norman, we help you build and maintain effective key and non-key controls. During an audit, we look closely at your key controls to ensure they’re catching significant risks. But we don’t ignore the non-key controls. We’ll review them too to help keep your financial systems robust and efficient.
Our goal is to guide you in setting up a system where both key and non-key controls work together to keep your business secure. By prioritizing key controls, we help you protect your business’s most valuable financial areas, all while adding non-key controls for that extra layer of safety.
Why This Matters for Your Business
When key and non-key controls are balanced effectively, your financial systems can handle day-to-day operations more smoothly, and you’ll be better protected from unexpected risks. Whether you’re a small business or a larger operation, understanding these controls makes it easier to see where potential issues might arise and gives you peace of mind that the foundation is strong.
At Cooper Norman, we’re here to make auditing transparent and straightforward. If you’d like to discuss setting up or evaluating controls in your business, our team of experts is ready to help. Let us show you how a good mix of key and non-key controls can make all the difference in protecting what you’ve built.