CMA Intermediate · Business Laws and Ethics · Internal Financial Control for Financial Reporting
Hari Textiles Ltd's management says its IFC framework consists only of the accounts department's bank reconciliations done every month. Which view best reflects the IFC framework as understood in this chapter?
The management view is incorrect because internal financial controls are a broad set of policies and procedures covering orderly conduct of business, asset safeguarding, fraud prevention, accurate records and reliable financial reporting. Monthly bank reconciliations are only one control activity within that framework.
- ACorrect, because IFC relates only to bank and cash accounts
- BIncorrect, because IFC is a broader set of policies and procedures covering operations, compliance and reporting, not only reconciliationsCorrect
- CCorrect, because IFC is limited to the work of the internal auditor
- DIncorrect, because IFC applies only to listed companies
Explanation
IFC comprises policies and procedures across the business, including asset safeguarding, fraud prevention, record accuracy and reliable reporting. Reconciliations are only one control activity. IFC is not confined to the internal auditor's work or to listed companies.
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