Question

A manager allows a large shipment of goods to a customer with unacceptable credit, even though the entity has an internal control in place to prevent this. Which term best describes this situation?

                Management deficiency

                Monitoring activity

                Management override

                Fraud risk

What is NOT an inherent limitation of all internal control systems?

                Limits of human judgment

                Management override of controls

                Cost of segregation of duties

                Collusion of personnel

Which is NOT a line of defense through which an organization should view its internal control?

                Internal auditors

                External auditors

                Management and other personnel

                Business-enabling functions

Which term refers to the determination that aspects exist and continue to exist in the design, implementation, and conduct of a system of internal control?

                Effective and efficient

                Present and functioning

                Operating together

                Reasonable assurance

Which statement with respect to assurance of an internal control system is NOT accurate?

                Absolute assurance is possible only in very limited circumstances.

                A system of internal control can be circumvented through collusion.

                Potential impacts of external events outside of management control can affect internal control.

                Human error is an example of a limitation inherent in internal control.

Answer 1

Q1) Answer is - Management Override

The manager has overridden the internal controls on credit check by allowing goods to ship to customer with unacceptable credit. This is bypassing/overriding the process and system.

Q2) Answer is - Cost of segregation of duties

The three options are limitations of internal control

Limits of human judgement -- Due to the limitations of human judgement resulting in human errors, the employees might deviate from internal controls.

Management override - This is override of internal controls by employees in position resulting in financial loss to the firm.

Collution of personnel - Collusion of personnel to deviate from internal controls.

Q3) Answer is - External auditors

Internal Auditors is third line of defense -

Management and other personnel is the first line of defense

Business enabling funtions are the second line of defense

Q4) Answer is - Present and functioning

Present and functioning means not only do the aspects exist but they are also functioning as required.

Q5) Answer is -  Absolute assurance is possible only in very limited circumstances.

Aabsolute Assurance is not possible in internal controls considering there will always be a hidden issue. Only Reasonable assurance is possible.