What provides a detailed study of the insurance company's internal accounting controls over a particular category of transactions?

Question

Options

• Ageneral risk review
• Btransaction flow review
• Ccompliance review
• Dactuary

• B
  77% (10)
• C
  8% (1)
• D
  15% (2)

Explanation

Option B (transaction flow review) is correct because this type of review traces specific categories of transactions through an insurer's accounting system from initiation to recording, specifically evaluating the internal controls at each step - making it the most targeted tool for examining control quality over a particular transaction type.

Why the distractors are wrong:

• A (general risk review) takes a broad, high-level look at overall risks facing the company - it doesn't drill into the mechanics of accounting controls for a specific transaction category.
• C (compliance review) focuses on whether the company is adhering to laws, regulations, and standards - not on the design and effectiveness of internal accounting controls.
• D (actuary) is a professional who estimates insurance liabilities and risk - a person/role, not a review methodology at all.

Memory tip: Think of "transaction flow" as literally following the money through a pipeline - you trace one type of transaction (e.g., claim payments) step-by-step through the system, which is exactly what you'd need to do to audit the controls around it. If it flows like a transaction, a transaction flow review examines it.

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