A Critical Element of Control Is Monitoring

question 56

Multiple Choice

A critical element of control is monitoring.What is most likely to happen if management fails to monitor an internal control?

• A)Necessary improvements will not be identified.
• B)Personnel are likely to stop observing the control.
• C)The inherent risk of an error will increase.
• D)The auditor is likely to assume the control is working when it might not be.

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Definitions:

Cost of Equity

The return that investors require for an investment in a company, representing the compensation for the risk taken.

Financing

Allocating resources for the purposes of business ventures, buying goods, or making investments.

Risk

The potential for losing something of value, or the potential for an investment's actual return to differ from its expected return.

Economic Value Added

A measure of a company's financial performance based on residual wealth, calculated by deducting a firm's cost of capital from its net operating profit.