Multiple Choice
Which of the following components of internal control is most directly related to ensuring that a financial report is fair and effective?
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6. Internal Controls and Reporting Cash
Five Components of Internal Controls
Multiple Choice
Which of the following statements is FALSE with regards to the five components of internal controls?
A
Information and communication only pertain to external reporting and are not relevant to internal processes.
B
Risk assessment involves identifying and analyzing relevant risks to achieving the entity’s objectives.
C
Control environment refers to the overall attitude, awareness, and actions of management regarding the internal control system.
D
Monitoring involves ongoing or separate evaluations to ensure internal controls are operating effectively.
Verified step by step guidance1
Step 1: Understand the five components of internal controls. These are: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. Each component plays a distinct role in ensuring the effectiveness of internal controls.
Step 2: Analyze the statement about 'Information and Communication.' This component pertains to both internal and external reporting. It ensures that relevant information flows within the organization and to external parties as needed. The statement claiming it only pertains to external reporting is incorrect.
Step 3: Review the statement about 'Risk Assessment.' This component involves identifying and analyzing risks that could prevent the entity from achieving its objectives. The statement provided is accurate and aligns with the definition of risk assessment.
Step 4: Examine the statement about 'Control Environment.' This component reflects the overall attitude, awareness, and actions of management regarding the internal control system. The statement provided is correct and matches the definition of control environment.
Step 5: Evaluate the statement about 'Monitoring.' Monitoring involves ongoing or separate evaluations to ensure that internal controls are functioning effectively. The statement provided is accurate and aligns with the definition of monitoring.
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