While considering internal control system of an entity, the auditor is basically concerned that the system provides reasonable assurance about which…

Question breakdown

Tests

Understand the auditor's concern when evaluating internal control

Difficulty

Medium

Key idea: Internal control gives reasonable, not absolute, assurance that errors and irregularities are prevented or detected, and override and collusion are recognised inherent limitations.

How to reach the answer

1. The clue is 'reasonable assurance', which points to the stated objective of internal control rather than to its limitations.
2. Management override (A) and collusion (D) are inherent limitations, so no control system can give assurance against them.
3. Operational efficiency against management plans (B) is a management performance matter, not the auditor's core control concern.
4. The auditor relies on controls to the extent they prevent or detect errors, which makes C the answer.

Each option

• AIncorrect. Management override is an inherent limitation that no control system can rule out.
• BIncorrect. Whether operations meet management's efficiency plans is a management objective and is not what the auditor relies on controls for.
• CCorrect. The auditor's basic concern is that controls reasonably assure errors are prevented or detected and corrected.
• DIncorrect. Circumvention through collusion is a recognised limitation of internal control, so assurance against it is not expected.

Common trap: A and D sound like strong control objectives, but they are the classic limitations that explain why assurance is only reasonable.

In practice: Environmental auditors test controls such as monitoring sign-offs and data-validation checks to judge whether reporting errors would be caught, while still accepting that override and collusion remain residual risks.

Remember: Internal control reasonably assures that errors are prevented or detected; override and collusion are its limitations, not its assurances.

Drafted with AI assistance and checked against the answer key.