Multiple Choice
Which of the following is NOT one of the five components of internal control as defined by COSO?
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6. Internal Controls and Reporting Cash
Five Components of Internal Controls
Multiple Choice
Which of the following is a principle of internal control?
A
Recording transactions only at year-end
B
Segregation of duties
C
Eliminating all documentation
D
Maximizing net income
Verified step by step guidance1
Understand the concept of internal control: Internal control refers to the processes and procedures implemented by an organization to ensure the accuracy and reliability of financial reporting, safeguard assets, and comply with laws and regulations.
Review the principles of internal control: Common principles include segregation of duties, documentation procedures, physical controls, independent internal verification, and establishment of responsibility.
Analyze the options provided: Evaluate each option to determine whether it aligns with the principles of internal control. For example, 'Recording transactions only at year-end' does not align with proper documentation procedures, and 'Eliminating all documentation' contradicts the need for accurate record-keeping.
Focus on segregation of duties: This principle involves dividing responsibilities among different individuals to reduce the risk of errors or fraud. For example, the person responsible for recording transactions should not be the same person responsible for authorizing them.
Conclude that segregation of duties is the correct answer: It is a fundamental principle of internal control that helps ensure accountability and reduces the risk of fraud or errors in financial processes.
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