The Importance of Internal Control to Management and Auditors Has

question 35

Multiple Choice

The importance of internal control to management and auditors has been recognised for many years. Which of the following is likely to be cited as a major factor contributing to this importance?

• A) The operations of the business entity have become so unwieldy that management must rely on the chief financial officer to effectively control operations.
• B) Checks and reviews protect against employee collusion and reduce the chance of employee fraud.
• C) Internal control procedures must be utilised to maintain accurate accounting records.
• D) It is impractical for auditors to audit most companies within economic fee limitations without relying on the client's system of internal controls.

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Definitions:

Preferred Stock

A class of ownership in a corporation with a stated dividend that must be paid before dividends to common stockholders.

Treasury Stock

Shares that were once part of the outstanding shares of a company but were bought back and held in the company's treasury.

U.S. Treasury Department

The federal department responsible for managing government revenue, producing money, and formulating fiscal policy in the United States.

Outstanding Shares

The total number of shares of a corporation's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares.