Multiple Choice
What is the primary purpose of internal controls within an organization?
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6. Internal Controls and Reporting Cash
Five Components of Internal Controls
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Which type of internal control framework is considered fairly rigid and requires that specific controls be implemented?
A
Risk-based framework
B
Rule-based framework
C
COSO framework
D
Principles-based framework
Verified step by step guidance1
Understand the concept of internal control frameworks: Internal control frameworks are systems designed to ensure the reliability of financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations.
Identify the characteristics of a rule-based framework: A rule-based framework is considered rigid because it requires specific controls to be implemented without much flexibility. It focuses on strict adherence to predefined rules and procedures.
Compare the rule-based framework with other frameworks: For example, a principles-based framework is more flexible and focuses on overarching principles rather than specific rules. The COSO framework is widely used and incorporates principles-based elements, while a risk-based framework focuses on identifying and mitigating risks.
Determine why the rule-based framework is the correct answer: The rigidity and requirement for specific controls are key characteristics of the rule-based framework, making it distinct from the other frameworks listed.
Conclude that the rule-based framework is the correct answer based on its defining characteristics and the context provided in the question.
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