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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

Which of the following is a feature of an effective system of internal control for which the directors are responsible?

Directors are responsible for internal controls that safeguard assets and help prevent and detect fraud and error. Controls provide reasonable rather than absolute assurance, authorisation is a core control, and responsibility cannot be passed to the external auditor.

  1. ATransferring responsibility for control to the external auditor
  2. BEnsuring that no errors can ever occur in the accounting records
  3. CEliminating the need for authorisation of transactions
  4. DSafeguarding assets and helping to prevent and detect fraud and errorCorrect

Explanation

Directors are responsible for internal control that safeguards assets and helps prevent and detect fraud and error. Controls can only give reasonable assurance, so guaranteeing no errors is unrealistic. Authorisation is itself a key control, and the auditor does not take over the directors' responsibility.

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