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CMA Intermediate · Corporate Accounting and Auditing · Audit Risk, Internal Control, Internal Check and Internal Audit

Under an effective internal check system in a manufacturing company, which arrangement best reflects the core principle on which internal check is built?

Internal check arranges the allocation of duties so that one employee's work is checked by another in the normal course of operations, and no single person handles a transaction from beginning to end. This reduces the chance of error and fraud going undetected.

  1. AThe same employee prepares the purchase order, receives the goods and records the supplier's invoice, so that the work is completed quickly
  2. BThe work of one employee is automatically checked by another employee in the ordinary course, so that no single person handles a transaction from start to finishCorrect
  3. CThe statutory auditor re-performs every entry at the year end and reports errors to the Board
  4. DThe internal audit department approves every transaction before it is entered in the books

Explanation

Internal check divides duties so that the work of one person is independently checked by another as part of routine working. Option A combines incompatible functions and defeats this. Options C and D describe audit activity or pre-approval, not the routine division of work that characterises internal check.

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