ITPEC IP April 2026 Question 65

Topic: System AuditAlso asked in Spring 2020

Among the descriptions A through D concerning the concept of internal control, which of the following is the list that contains all appropriate descriptions?

AComplying with the laws, etc. concerning business activities to promote the business activities conforming to social norms is one of the objectives of internal control.BWhile complying with the laws, etc. concerning business activities is one of the objectives of internal control, promotion of business activities conforming to social norms is not required.CThe concept of internal control is effective in non-listed companies too, and it is necessary to work on it.DThe concept of internal control is necessary only in listed companies.

Explanation

A, C — internal control covers compliance with laws and conformity to social norms, and it is worth building in any company, listed or not.

Internal control is the process that management and all staff build into daily operations to give reasonable assurance of four objectives: effective and efficient operations, reliable financial reporting, compliance with laws and regulations related to business activities, and safeguarding of assets. The compliance objective explicitly means promoting business activities that conform to laws and social norms, so A is appropriate and B is not. Listed companies have a legal duty to evaluate and report their internal control over financial reporting, but sound, compliant and efficient operations matter to every company, so C is appropriate and D is not.

Answer (a)

Why not others:

  • •(b) A, D — D confines internal control to listed companies; only the reporting obligation is specific to them
  • •(c) B, C — B drops conformity to social norms, which the compliance objective includes
  • •(d) B, D — both statements are inappropriate

Key rule: Internal control serves four objectives (operations, financial reporting, compliance with laws and social norms, safeguarding assets) and applies to every organization, not only to listed companies.

System Audit · AI-written, may contain errors

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