Question

Entity-level controls involve _______.

A. all five components of internal controls
B. all four components of internal controls
C. all auditor and client controls
D. all controls recommended by the internal audit function

Answer 1

Entity-level controls involve all five components of internal controls. Option a is correct.

Step-by-step explanation:

These components are part of the framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which include the following: control environment, risk assessment, control activities, information and communication, and monitoring activities.

Entity-level controls are essential for setting the tone at the top and are foundational for all other internal controls within an organization. These controls can have a pervasive effect on the organization's ability to achieve its objectives and manage its risks effectively.

These entity-level controls are designed to ensure the integrity of financial reporting, compliance with laws and regulations, and the effective and efficient operation of the company. Without a strong set of entity-level controls, an organization might struggle to enforce compliance, prevent fraud, and maintain reliable financial reporting, which could lead to operational inefficiencies or even financial losses.

Option a is correct.