Describe the three broad objectives management has when designing effective internal control. (Select the three. correct choices.) A. Efficiency and effectiveness of operations. Controls within a company encourage efficient and effective use of its resources to optimize the company's goals. An important objective of these controls is accurate financial and nonfinancial information about the company's operations for decision making. B. Reliability of financial reporting. Management is responsible for preparing statements for investors, creditors, and other users. Management has both a legal and professional responsibility to be sure that the information is fairly presented in accordance with reporting requirements of accounting frameworks such as GAAP and IFRS. The objective of effective internal control over financial reporting is to fulfill these financial reporting responsibilities. C. Reasonable assurance. A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated. Internal controls are developed by management after considering both the costs and benefits of the controls. The concept of reasonable assurance allows for only a remote likelihood that material misstatements will not be prevented or detected on a timely basis by internal control. D. Design of internal control. Management must evaluate whether the controls are designed and put in place to prevent or detect material misstatements in the financial statements. Management's focus is on controls that address risks related to all relevant assertions for all significant accounts and disclosures in the financial statements. This includes evaluating how significant transactions are initiated, authorized, recorded, processed, and reported to identify points in the flow of transactions where material misstatements due to error or fraud could occur. E. Operating effectiveness of controls. Management must test the operating effectiveness of controls. The testing objective is to determine whether the controls are operating as designed and whether the person performing the control possesses the necessary authority and qualifications to perform the control effectively. Management's test results, which must also be documented, form the basis for management's assertion at the end of the fiscal year about the controls' operating effectiveness. Management must disclose any material weakness in internal control. Even if only one material weakness is present, management must conclude that the company's internal control over financial reporting is not effective. The SEC requires management to include its report on internal control in its annual Form 10-K report filed with the SEC. F. Compliance with laws and regulations. Section 404 requires management of all public companies to issue a report about the operating effectiveness of internal control over financial reporting. In addition to the legal provisions of Section 404, public, nonpublic, and not-for-profit organizations are required to follow many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income tax regulations and anti-fraud regulations such as the Foreign Corrupt Practices Act of 1977 and certain provisions of the Sarbanes-Oxley Act. G. Inherent limitations. Internal controls can never be completely effective, regardless of the care followed in their design and implementation. Even if management can design an ideal system, its effectiveness depends on the competency and depend ability of the people using it.
Describe the three broad objectives management has when designing effective internal control. (Select the three correct choices.) A. Efficiency and effectiveness of operations. Controls within a company encourage efficient and effective use of its resources to optimize the company's goals. An important objective of these controls is accurate financial and nonfinancial information about the company's operations for decision making. B. Rellability of financial reporting. Management is responsible for preparing statements for investors, creditors, and other users. Management has both a legal and professional responsibility to be sure that the information is fairly presented in accordance with reporting requirements of accounting frameworks such as GAAP and IFRS. The objective of effective internal control over financial reporting is to fulfill these financial reporting responsibilities. C. Reasonable assurance. A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated. Internal controls are developed by management after considering both the costs and benefits of the controls. The concept of reasonable assurance allows for only a remote likelihood that material misstatements will not be prevented or detected on a timely basis by internal control. D. Design of internal control. Management must evaluate whether the controls are designed and put in place to prevent or detect material misstatements in the financial statements. Management's focus is on controls that address risks related to all relevant assertions for all significant accounts and disclosures in the financial statements. This includes evaluating how significant transactions are initiated, authorized, recorded, processed, and reported to identify points in the flow of transactions where material misstatements due to error or fraud could occur. E. Operating effectiveness of controls. Management must test the operating effectiveness of controls. The testing objective is to determine whether the controls are operating as designed and whether the person performing the control possesses the necessary authority and qualifications to perform the control effectively. Management's test results, which must also be documented, form the basis for management's assertion at the end of the fiscal year about the controls' operating effectiveness. Management must disclose any material weakness in internal control. Even if only one material weakness is present, management must conclude that the company's internal control over financial reporting is not effective. The SEC requires management to include its report on internal control in its annual Form 10-K report filed with the SEC. F. Compliance with laws and regulations. Section 404 requires management of all public companies to issue a report about the operating effectiveness of internal control over financial reporting. In addition to the legal provisions of Section 404, public, nonpublic, and not-for-profit organizations are required to follow many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income tax regulations and anti-fraud regulations such as the Foreign Corrupt Practices Act of 1977 and certain provisions of the Sarbanes-Oxley Act. G. Inherent limitations. Internal controls can never be completely effective, regardless of the care followed in their design and implementation. Even if management can design an ideal system, its effectiveness depends on the competency and depend ability of the people using it. Describe the three broad objectives management has when designing effective internal control. (Select the three correct choices.) A. Efficiency and effectiveness of operations. Controls within a company encourage efficient and effective use of its resources to optimize the company's goals. An important objective of these controls is accurate financial and nonfinancial information about the company's operations for decision making. B. Reliability of financial reporting. Management is responsible for preparing statements for investors, creditors, and other users. Management has both a legal and professional responsibility to be sure that the information is fairly presented in accordance with reporting requirements of accounting frameworks such as GAAP and IFRS. The objective of effective internal control over financial reporting is to fulfill these financial reporting responsibilities. C. Reasonable assurance. A company should develop internal controls that provide reasonable, but not absolute, assurance that the financial statements are fairly stated. Internal controls are developed by management after considering both the costs and benefits of the controls. The concept of reasonable assurance allows for only a remote likelihood that material misstatements will not be prevented or detected on a timely basis by internal control. D. Design of internal control. Management must evaluate whether the controls are designed and put in place to prevent or detect material misstatements in the financial statements. Management's focus is on controls that address risks related to all relevant assertions for all significant accounts and disclosures in the financial statements. This includes evaluating how significant transactions are initiated, authorized, recorded, processed, and reported to identify points in the flow of transactions where material misstatements due to error or fraud could occur. E. Operating effectiveness of controls. Management must test the operating effectiveness of controls. The testing objective is to determine whether the controis are operating as designed and whether the person performing the control possesses the necessary authority and qualifications to perform the control effectively. Management's test results, which must also be documented, form the basis for management's assertion at the end of the fiscal year about the controls' operating effectiveness. Management must disclose any material weakness in internal control. Even if only one material weakness is present, management must conclude that the company's internal control over financial reporting is not effective. The SEC requires management to include its report on internal control in its annual Form 10-K report filed with the SEC. F. Compliance with laws and regulations. Section 404 requires management of all public companies to issue a report about the operating effectiveness of internal control over financial reporting. In addition to the legal provisions of Section 404, public, nonpublic, and not-for-profit organizations are required to follow many laws and regulations. Some relate to accounting only indirectly, such as environmental protection and civil rights laws. Others are closely related to accounting, such as income tax regulations and anti-fraud regulations such as the Foreign Corrupt Practices Act of 1977 and certain provisions of the Sarbanes-Oxley Act. G. Inherent limitations. Internal controls can never be completely effective, regardless of the care followed in their design and implementation. Even if management can design an ideal system, its effectiveness depends on the competency and depend ability of the people using it
