Question

Which of the following statements regarding a system of internal control is false?

a. Effective internal control systems provide complete assurance against the occurrence of material frauds and embezzlements.
b. Internal control systems depend largely on the competency and honesty of people.
c. Because internal control systems have a cost, management should evaluate the cost/benefit of each control plan.
d. The development of an internal control system is the responsibility of management.

Answer 1

The correct option is a). The false statement is that effective internal control systems provide complete assurance against material fraud; no system can offer such complete assurance due to various inherent limitations.

Step-by-step explanation:

The statement regarding a system of internal control that is false is: a. Effective internal control systems provide complete assurance against the occurrence of material frauds and embezzlements. No internal control system can provide complete assurance against fraudulent activities due to various limitations, including the potential for human error, the possibility of collusion among employees, and the fact that controls can be overridden by management. Furthermore, an internal control system must strike a balance between its costs and benefits, which is a principle acknowledged in statement c.