AUE2601 Assignment 3 Due October 2024

Question 1
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Even though management may put controls in place at a business, these controls and policies sometimes do not provide absolute
assurance that the risks that threaten the objectives of the business will be adequately responded to due to the following reasons:
1.    Management’s usual requirement is that the cost of internal control exceeds the expected benefit to be derived (cost/benefit).
2.    Judgement errors on the nature and extent of the controls implemented and the risk assumed.
3.    The tendency for internal controls to be directed at non-routine transactions rather than routine transactions.
4.    The potential for human error due to carelessness, distraction, mistakes of judgement and the misunderstanding of instructions.
5.    The possibility of circumvention of internal controls through the collusion of a member of management, or an employee, with
parties outside or inside the company.
Which option correctly indicates the limitations of internal controls?