ITPEC IP October 2018 Question 64
Which of the following is an appropriate combination of words to be inserted into blanks A and B in the description below concerning the implementation of internal control?
The implementation of internal control requires A, separation of duties, setting of rules and procedures, and B.
Explanation
A: clarification of business processes, B: establishment of checking systems — the four elements of implementing internal control.
Internal control is the mechanism by which an organization makes its business run properly: operations effective and efficient, financial reporting reliable, laws observed and assets protected. Putting it in place requires:
- •clarifying the business processes, so that the risks and control points in each step are known
- •separation of duties, so that no one person handles incompatible tasks such as approval and execution
- •setting rules and procedures for carrying out the work
- •establishing checking systems, so that errors and fraud are detected by someone other than the person doing the work
Answer (d)
Why not others:
- •(a) — has neither correct item: computerization is a means of doing business, not a requirement of control, and efficiency is an objective of internal control, not a means of implementing it
- •(b) — A is wrong: internal control can exist on paper-based work; computerizing operations is not one of its elements
- •(c) — B is wrong: improving efficiency is one of the goals internal control serves, not a control mechanism like checking
Key rule: Internal control is built from clear processes, separated duties, defined rules and independent checks; computerization and efficiency are what it may serve, not what it consists of.
System Audit · AI-written, may contain errors
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