[ROCKSTAR]

NINJA Question –

Hello everyone!!
From ninja MCQ: Question #: 1468 Category: 2F9 Consider Limitations of Internal Control

Question: When considering internal control, an auditor should be aware of the concept of reasonable assurance, which recognizes that:

A. internal control policies and procedures may be ineffective due to mistakes in judgment and personal carelessness.

B.adequate safeguards over access to assets and records should permit an entity to maintain proper accountability.

C.establishing and maintaining internal control is an important responsibility of management.

Incorrect D.
the cost of an entity’s internal control should not exceed the benefits expected to be derived.

NINJA Rationale. You answered D. The correct answer is A.

No matter how well internal controls may be designed and operated, they can only provide an entity with reasonable, but not absolute, assurance about achieving the entity’s objectives. Certain limitations are inherent to internal control, including the following:

Human judgment in decision making can be faulty.
Breakdowns in internal control can occur because of human failures such as simple errors or mistakes.
Errors may occur in the use of information produced by IT when that information is not effectively used because the individual responsible for reviewing the information does not understand its purpose or fails to take appropriate action.
Controls can be circumvented by collusion or inappropriate management override.
Management may make judgments on the nature and extent of the controls it chooses to implement and the nature and extent of the risk it chooses to assume.

Roger: Answer D is correct. D made sense. Who is correct!!???

AUD:76