Question

Below are several statements about internal controls.1. The components of internal control are built on the foundation of the ethical tone set by top management. 2. Once every three months, managers need to review operations to ensure that control procedures work effectively. 3. Collusion refers to the act of a single individual circumventing internal control procedures. 4. Detective control procedures are designed to detect errors or fraud that have already occurred, while preventive control procedures are designed to keep errors or fraud from occurring in the first place. 5. Fraud committed by top-level employees is more difficult to detect because those employees more often have the ability to override internal control features. 6. A good example of separation of duties would be having one person collect cash from customers and account for it, while having another person order inventory and maintain control over it. 7. Employee tips historically have been the most common means of detecting employee fraud. 8. Detective controls include reconciling the physical assets of the company with the accounting records and comparing actual performance of individuals or processes against their expected performance. 9. Effective internal controls and ethical employees ensure a company's success.Stae whether the answer to each statement is true or fasle.

Answer 1

Answer:

1. True

2. False

3. False

4. True

5. True

6. False

7. True

8. True

9. False

Explanation:

Internal controls can be defined as the policies, set of rules, and procedures implemented or put in place by an organization to protect its assets, boost efficiency, enhance financial accountability, enforce adherence to company policies and prevent fraudulent behaviors among the employees.

The purpose of internal controls is that companies use strong internal controls to guarantee that loss is eliminated as there's an accurate and reliable accounting system.

An internal control involves the timely use of both internal and external sources of auditing or financial reporting and as such enhance the maintenance of accurate and proper financial records which would also improve their operational efficiency.

Hence, internal controls if properly executed helps to increase operational efficiency, protect and safeguard assets, provides accurate financial information, prevents fraudulent or unlawful behaviors, timeliness of financial records and reporting.

1. True: The components of internal control are built on the foundation of the ethical tone set by top management.

2. False: Once every three months, managers need to review operations to ensure that control procedures work effectively.

3. False: Collusion refers to the act of a single individual circumventing internal control procedures.

4. True: Detective control procedures are designed to detect errors or fraud that have already occurred, while preventive control procedures are designed to keep errors or fraud from occurring in the first place.

5. True: Fraud committed by top-level employees is more difficult to detect because those employees more often have the ability to override internal control features.

6. False: A good example of separation of duties would be having one person collect cash from customers and account for it, while having another person order inventory and maintain control over it.

7. True: Employee tips historically have been the most common means of detecting employee fraud.

8. True: Detective controls include reconciling the physical assets of the company with the accounting records and comparing actual performance of individuals or processes against their expected performance.

9. False: Effective internal controls and ethical employees ensure a company's success.