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

While evaluating internal check in a purchases system, which of the following is a limitation inherent in any internal check system?

A key limitation is that collusion between employees whose duties are segregated can defeat the system, since the check depends on each person acting independently. Internal check therefore reduces but cannot eliminate error and fraud, and it does not remove the need for audit.

  1. AIt can always be relied upon fully because it is designed by management
  2. BIt can be defeated by collusion between employees whose duties have been separatedCorrect
  3. CIt makes the statutory audit unnecessary
  4. DIt eliminates the possibility of human error in processing

Explanation

Internal check relies on independent persons checking each other, so if the employees collude the checks fail. It does not replace the audit, cannot be fully relied on merely because management designed it, and cannot eliminate human error entirely.

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