Limitations of Internal Controls definitions Flashcards
Limitations of Internal Controls definitions
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Internal Controls
Systems designed to prevent or detect fraud and ensure the safeguarding of assets and reliability of financial information. Fraud
Intentional deception or misappropriation of company resources, often targeted by internal control systems. Human Error
Mistakes or oversights by employees that can undermine the effectiveness of established procedures. Carelessness
Lack of attention or diligence by staff, potentially leading to the failure of control measures. Indifference
Employee attitude of disregard toward procedures, reducing the effectiveness of internal controls. Collusion
Cooperation between two or more employees to bypass controls and commit fraud, defeating separation of duties. Separation of Duties
Division of responsibilities among employees to reduce the risk of error or fraud. Executive Override
Ability of high-level management to bypass controls, often by authorizing their own transactions. CFO
Top financial executive who may have authority to approve transactions without additional oversight. Small Business
Organization with limited staff, making it challenging to implement effective separation of duties. Cost-Benefit Analysis
Evaluation of whether the expense of implementing controls is justified by the potential reduction in fraud risk. Trustworthiness
Reliability and integrity of employees, a factor considered when deciding on the extent of controls. Reasonable Assurance
Level of confidence provided by controls, indicating a high but not absolute likelihood of achieving objectives. Safeguarding of Assets
Protection of company resources from loss, theft, or misuse through internal control measures. Reliability of Financial Information
Confidence that reported financial data accurately reflects the company's true financial position.
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