In the context of internal controls, which three of the following are true of a smaller entity? (choose three options)
A)It has limitations surrounding its ability to put effective internal controls in place.
B)The small number of its employees limits its ability to segregate duties.
C)The risk of management override can be reduced by establishing documented policies and procedures.
D)It is easier for smaller entities to have a paper trail of documentation supporting an assessment of internal controls.

Question

Quizplus · Accepted Answer

A smaller entity may have limitations surrounding its ability to put effective internal controls in place due to limited resources and staff. The small number of employees also limits the ability to segregate duties, which in turn increases the risk of errors and fraud. However, the risk of management override can be reduced by establishing documented policies and procedures, which is easier to implement in smaller entities. Having a paper trail of documentation supporting an assessment of internal controls may be easier for smaller entities, but it is not necessarily a true statement for all smaller entities.

In the Context of Internal Controls, Which Three of the Following