Evaluation of Internal Controls

NotesQuizCBE

Limitations of Internal Controls

Controls are only as good as those applying them..

  • Collusion from staff

    • May result in fraud no matter how strong the controls are

  • Practice is different from theory

    • The specific circumstances of the entity make some controls unworkable or be manipulated in practice by those involved in the system

If controls are insufficient

  • More testing needed

    Increased sample sizes directly on the specific risk in question

  • Alternative sources of evidence needed

    These could include external confirmation, or analytical procedures

The possibility of FRAUD means substantive testing is always required

NotesQuizCBE