Week 5 - Limitations of Internal Controls

Question 1

What are the first 2 limitations of internal controls?

Answer 1

• cost versus benefit
• may only cover routine transactions - not unusual/one-off events

Question 2

What are the second 2 limitations of internal controls?

Answer 2

• may not take into account human error
• controls can still be susceptible to deliberate fraud and/or collusion between parties

Question 3

What are the final 3 limitations of internal controls?

Answer 3

• management may be able to over-ride controls
• business environment may change, rendering controls weaker
• over reliance on IT