The control environment ________.
A)describes the auditor's system of internal control
B)refers to both the financial statements of the client and the audit work being conducted
C)sets the foundation for effective internal control, and provides discipline and structure
D)speaks to the ability of the client to gain funding in capital markets

Question

Quizplus · Accepted Answer

The control environment refers to the foundation for effective internal control, providing discipline and structure for the system. It sets the tone for the organization and establishes the attitudes and actions of its employees towards control. It is one of the five components of internal control, as defined by COSO (Committee of Sponsoring Organizations of the Treadway Commission). The other components are risk assessment, control activities, information and communication, and monitoring. Therefore, option A is incorrect as it refers to the auditor's system of internal control. Option B is incorrect as it is a broader definition that encompasses financial statements and audit work. Option D is incorrect as it is unrelated to the control environment.

The Control Environment ________