ITPEC IP April 2025 Question 64
A food manufacturer is conducting business in accordance with food industry safety standards. As the safety standards are revised, the internal standards of the company are also revised accordingly. Which of the following objectives of internal control corresponds to this action?
Explanation
Compliance with laws and regulations related to business operations — revising the internal standards whenever the industry's safety standards change keeps the company within the rules it must follow.
Internal control pursues four objectives (the COSO framework's three, with protection of assets added in Japan's framework): effectiveness and efficiency of business, reliability of financial reporting, compliance with laws and regulations related to business operations, and protection of assets. The food manufacturer tracks an external set of rules, the industry's safety standards, and updates its own standards so that its operations keep conforming to them. That is the compliance objective.
Answer (c)
Why not others:
- •(a) — effectiveness and efficiency concern achieving business goals with less waste; the action is driven by an outside rule change, not by speed or cost
- •(b) — reliability of financial reporting concerns accurate, trustworthy financial statements; food safety standards do not touch the accounting figures
- •(d) — protection of assets concerns the proper acquisition, use and disposal of company property and guarding it against loss or misuse
Key rule: Ask what the control answers to: external rules point to compliance, accounting figures to financial reporting, company property to asset protection, business goals and cost to effectiveness and efficiency.
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