Of the following statements about an internal control system,which one is correct?
A) The maintenance of the system of internal control is an important responsibility of the internal audit function.
B) Administrative controls relate directly to the safeguarding of assets.
C) Because of the cost/benefit relationship, tests of controls may be applied on a test basis in some circumstances.
D) Well designed internal control activities always prevent collusion among employees.

Question

Quizplus · Accepted Answer

Tests of controls are conducted to evaluate the effectiveness of the internal control system. However, conducting tests on all controls may not be cost-effective, and therefore, tests may be conducted on a sample basis. This is based on the cost/benefit relationship, where the cost of conducting the test should be less than the benefit derived from it.

Option A is incorrect because while the internal audit function plays a role in evaluating the effectiveness of the internal control system, it is not solely responsible for maintaining the system.

Option B is incorrect because administrative controls are only one of many types of controls designed to safeguard assets. Other controls include physical controls, technical controls, and detective controls.

Option D is incorrect because while a well-designed internal control system can deter collusion, it cannot prevent it entirely, as collusion involves individuals intentionally circumventing the control system.

Of the Following Statements About an Internal Control System,which One