Question

The definition of internal control developed by the Committee of Sponsoring Organizations (COSO) includes controls related to the reliability of internal and external reporting, the effectiveness and efficiency of operations, and:
A) Effectiveness of prevention of fraudulent occurrences.
B) Incorporation of ethical business practice standards.
C) Safeguarding of entity equity.
D) Compliance with applicable laws and regulations.

Answer 1

Answer:

The correct answer is Option D.

Explanation:

Internal control comprises the whole system of financial and other controls established and operating within a business, including internal check, internal audit and all other forms of control.

Based on Committee of Sponsoring Organizations (COSO) framework, there are 5 interrelated components of internal control, which are: Control environment, Risk assessment, Control activities, Information and communication and Monitoring.

It is necessary to stress that internal control relates to all forms of controls within an organization and not necessarily limited to only accounting matters e.g., a security check on vehicles exiting business premises to be sure they are not carrying stolen items from the organization is an internal control but not an accounting-related.