Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

6. Internal Controls and Reporting Cash

Five Components of Internal Controls

Financial Accounting

6. Internal Controls and Reporting Cash

Five Components of Internal Controls

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Multiple Choice

Which of the following statements is correct regarding the five components of internal control as defined by COSO?

Internal control components only apply to financial reporting and not to operations or compliance.

The five components must be implemented sequentially, starting with monitoring.

The five components are control environment, risk assessment, control activities, information and communication, and monitoring.

The five components are planning, organizing, leading, controlling, and evaluating.

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Verified step by step guidance

Understand the context of the question: The problem is asking about the five components of internal control as defined by COSO (Committee of Sponsoring Organizations of the Treadway Commission). COSO provides a framework for designing, implementing, and evaluating internal control systems.

Clarify the incorrect statements: The first statement is incorrect because internal control components apply to financial reporting, operations, and compliance, not just financial reporting. The second statement is incorrect because the five components do not need to be implemented sequentially; they work together as an integrated system. The fourth statement is incorrect because the five components listed (planning, organizing, leading, controlling, and evaluating) are not part of the COSO framework; they are management functions.

Identify the correct statement: The third statement is correct. The five components of internal control as defined by COSO are: control environment, risk assessment, control activities, information and communication, and monitoring.

Explain the five components briefly: Control environment sets the tone of the organization and influences the control consciousness of its people. Risk assessment involves identifying and analyzing risks to achieving objectives. Control activities are the policies and procedures that help ensure management directives are carried out. Information and communication involve the flow of information necessary to support internal control. Monitoring involves assessing the quality of internal control performance over time.

Conclude by emphasizing the importance of understanding the COSO framework: The COSO framework is widely used in organizations to ensure effective internal control systems that support financial reporting, operational efficiency, and compliance with laws and regulations.