ITPEC IP April 2024 Question 64
Which of the following is the term for the assignment of employees’ role that applies mutual checks among employees for the purpose of reducing the risk of misconduct or errors in work from the standpoint of internal control?
Explanation
Segregation of duties — splitting a job among employees so that they check and restrain one another.
In internal control, incompatible tasks such as authorising a transaction, executing it, recording it and keeping the assets are given to different people. No one person can then both commit an error or fraud and conceal it, because the next person in the chain sees the work. Typical examples: the person who orders goods does not pay for them, and developers do not operate the production system.
Answer (b)
Why not others:
- •(a) Delegation of authority — hands decision rights down to subordinates; it clarifies who may decide, but does not by itself set people to check each other
- •(c) Monitoring — the ongoing and separate evaluation of whether internal controls work, one component of internal control, not a way of assigning roles
- •(d) Diversification of risk — spreading exposure over several assets, suppliers or sites so one loss does not hit everything, a risk treatment rather than a division of work
Key rule: When the question is about assigning roles so that people restrain one another, the answer is segregation of duties; monitoring is how management later checks that such controls work.
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