Question

Which of the following statements is correct regarding internal control? An inherent limitation of internal control is that controls can be circumvented by management override. Internal control is a necessary business function and should be designed and operated to detect all fraud and error. A well-designed and operated internal control environment should detect collusion. A well-designed internal control environment ensures the achievement of an entity’s control objectives.

Answer 1

Answer:

The correct answer is letter "A": An inherent limitation to internal control is the fact that controls can be circumvented by management override.

Explanation:

Internal controls limit fraud and other internal activities of the organizations. The organization put it in place to ensure the integrity of its finance and accounting. The main disadvantage of internal control is that it is driven by top executives, who can override internal controls for efficiency purposes but actually it could be being circumvented by collusion.