ICAEW ARF · Chapter 4 · Question 7 of 12
Two cheque signatories, each required to approve every payment, agree together to sign payments to a fictitious supplier they have set up. Which inherent limitation of internal control does this illustrate?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Collusion
Explanation
The control of two signatories relies on each acting independently. When two or more people agree to act together to circumvent the control, it is collusion, which internal control cannot fully prevent. Management override occurs when a manager instructs others to bypass controls, and human error involves mistakes rather than deliberate fraud.
More Internal control systems and IT controls MCQs
- Q9How should an auditor communicate significant deficiencies in internal control identified during an audit?
- Q10Which of the following would NOT normally be included in an auditor's report to management on internal control deficiencies?
- Q11Which of the following controls best prevents unauthorised changes being made to a company's accounting software?
- Q12What is the main purpose of a walk-through test?
- Q1Which of the following is NOT a component of an entity's system of internal control?