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CS Professional · Internal and Forensic Audit · Internal Controls

Which statement best describes the difference between preventive and detective controls in an internal audit setting at Narmada Foods Ltd?

Preventive controls, such as authorisation limits, aim to stop errors or fraud before they occur, while detective controls, such as bank reconciliations, discover them after they have occurred. A sound control system combines both, supporting the objective of preventing and detecting frauds and errors.

  1. APreventive controls such as authorisation limits stop errors before they occur, while detective controls such as bank reconciliations identify errors after they occurCorrect
  2. BPreventive controls identify fraud after occurrence, while detective controls stop it beforehand
  3. CBoth are performed only by the statutory auditor
  4. DDetective controls are required only for listed companies

Explanation

Preventive controls, like approval limits and access restrictions, are designed to stop errors or fraud from happening. Detective controls, like reconciliations and exception reports, discover them after the event. Option B reverses this, and the other options have no basis.

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