The custodian of a company asset should
a. have access to the accounting records for that asset.
b. be someone outside the company
c. not have access to the accounting records for that asset.
d. be an accountant.
The correct answer and explanation is :
The correct answer is c. not have access to the accounting records for that asset.
Explanation:
The custodian of a company asset is the person responsible for the physical safekeeping and maintenance of that asset. This role is part of a key principle in internal controls: segregation of duties. Segregation of duties ensures that no one individual has too much control over any single aspect of a business process, which helps to prevent fraud and errors.
When an individual who is responsible for safeguarding an asset also has access to the accounting records or financial data associated with that asset, it opens the door for potential fraudulent activities. For example, a custodian with access to both the physical asset and its accounting records could manipulate the records to cover up theft or misuse of the asset. To mitigate this risk, the person who has custody of the asset should not be involved in the accounting or recording processes.
Segregation of duties specifically calls for a distinction between the roles of asset custodians and those responsible for recording, authorizing, or auditing transactions related to the asset.
In practical terms, this means that someone who physically controls an asset, such as inventory or equipment, should not have the authority to adjust its value in the company’s financial records or manage its depreciation. Another individual, typically someone from the accounting or finance department, should handle the financial aspects of the asset’s lifecycle. This separation minimizes the opportunity for intentional fraud or unintentional mistakes that could lead to financial discrepancies.
Thus, by ensuring that custodians do not have access to the accounting records, a company can strengthen its internal control systems, ensuring greater accuracy and accountability.