When Internal Controls Are Effective

question 2

Multiple Choice

When internal controls are effective:

• A)the organisation is more likely to achieve its strategic and operating objectives
• B)there will be an increased reliance on substantive tests of transactions and account balances
• C)control risk will also be high
• D)the organisation is less likely to achieve its strategic and operating objectives

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Definitions:

Fixed Asset Turnover Ratio

A financial metric that measures how efficiently a company uses its fixed assets to generate sales, calculated by dividing net sales by average fixed assets.

Capital Intensity Ratio

This ratio measures a company's investment in physical assets relative to its labor costs, indicating how much capital is used in the production process.

External Financing Needed

The amount of funding that a company must seek from external sources to finance its planned activities or investments, beyond what it can generate internally.

Capital Intensity Ratio

A measure of how much capital is used in relation to labor in the production process of a company.