Chapter 5, Problem 1SEQ

To determine

Introduction:

Internal control is a process affected by management and directors of the company to provide reasonable assurance in achieving objectives in the following categories:

1. Safeguarding assets for business purposes.
2. Providing accurate business information.
3. Compliance with laws and regulations by employees and managers.

To choose:

The correct option.

Answer to Problem 1SEQ

c.

Explanation of Solution

Explanation for correct answer:

The Committee of Sponsoring Organizations of Treadway Commission (COSO) framework has three objectives to assess the effectiveness of the system of internal control relating to safeguarding the assets against any loss:

• Encompassing reliability.
• Transparency and timeliness of business information.
• Adhering to laws and regulations by the entity.

Thus, compliance with laws and regulations is not an element of internal control defined in COSO framework. It is one of the objectives of internal control system.

Explanation for incorrect answers:

Option A-Control Environment:

It is an element of internal control that defines the attitude of management and employees towards the need of internal control system and expected standards of the conduct.

Option B- Monitoring:

It is an important element to assess the weaknesses in operating internal controls and evaluate the activities of managers and supervisors, the budget and other financial documents.

Option D-Control Procedures:

It is an element of internal control which provides reasonable assurance that the objectives laid down by the management will be achieved including prevention of fraud.

Conclusion:

Thus, the elements of internal control-integrated framework include control environment, monitoring and controlling procedures while complying with laws and regulations is an objective of a control environment.