What does segregation of duties in accounting practice emphasize?

• A. One person should handle all financial transactions
• B. All individuals should monitor compliance
• C. No individual should control all aspects of a financial transaction
• D. Financial transactions should be initiated by the Board

Answer: (C)

Segregation of duties in accounting is a fundamental internal control principle designed to prevent fraud and errors. The emphasis is on ensuring that no single individual has control over all aspects of any financial transaction. By distributing responsibilities across multiple individuals, organizations can reduce the risk of unauthorized actions and increase oversight.

For instance, one person may be responsible for initiating a transaction, while another verifies it and yet another handles the recording. This layered approach provides checks and balances, which significantly enhances the accuracy and integrity of financial reporting. Additionally, in cases where a mistake occurs, it becomes easier to pinpoint where the error might have happened without the risk of having one person cover their tracks.

This principle is crucial because it not only helps to deter fraudulent activities but also promotes accountability, as multiple parties are involved in the financial processes.