Chapter 8, Problem 1QC

Which of the following is not part of the definition of internal control?

Learning Objective 1

1. Separation of duties
2. Safeguard assets
3. Encourage employees to follow company policies
4. Promote operational efficiency

To determine

Internal Control:It is a process for assuring achievement of an organization objectives through operational efficiency and effectiveness which includes financial reporting, compliance with the applicable laws and regulations.

Option that is not an objective of Internal control.

Explanation of Solution

Solution:

The correct answer is (c).

Explanations:

Definition of Internal control is internal control is a process designed to provide reasonable assurance regarding achievement of the following objectives:

1. Safeguarding of assets.
2. Encourage employees to follow company policies.
3. Promote Operational efficiencies
4. Compliance with applicable laws and regulations.

Given options can be analyzed as follows:

1. Separation of duties is a control procedure to ensure that the employees are free from any kind of fraudulent activities but it’s not an internal control.
2. Safeguard of assets is an internal control to ensure that the assets are safeguarded properly with proper control.
3. Encourage employees to follow company policies, the internal control mechanism requires to follow all the policies of the company in an effective way.
4. Promote operational efficiencies, a company following internal control procedure is expected to promote the operational efficiencies’ of the company.

Conclusion

From the above analysis, we can conclude that Separation of duties is not a part of definition of internal control.