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What Are The Limitations Of Internal Control?

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Alex Wheeler Profile
Alex Wheeler answered
Internal controls are based on management's policies and processes. So with all controls and plans there are limitations as well as unforeseen risks that cannot always be prevented. Each time we make a change to an existing system, we run the risk of weakening the underlying internal controls. No matter how well internal controls are designed, they can only provide reasonable assurance that a positive outcome can be achieved.
When we talk about internal controls, there are 5 basic concepts to consider:
Environment - defines organisational culture and influences the acceptable behavior of employees. This concept includes such things as staff competency, integrity, management’s philosophy and ethical values.
Risk - is the way of identifying that something at work may well go wrong and assessing and identifying risks before they become a problem. These could be linked to external sources but either way, every aspect needs to be measured to ensure all objectives are being met with satisfaction.
Activities - details the policies and procedures that provide direction as to how management expects actions or activities to be performed.
Information and Communication - explains how necessary information (both internal and external) must be obtained and analysed at the appropriate time, addressing the right people, so that they may carry out their duties accurately. This is perhaps one of the more important concepts.
Monitoring - assesses the quality of internal controls. This is when feedback from members of staff, not necessarily in management can make a difference in how internal controls is working.
The limitations is that although present policies and plans may work now, they may not achieve consistently and they may need to be changed. These changes could weaken internal controls as mentioned before and these are the risks that internal control brings.
Anonymous Profile
Anonymous answered
1.  Judgment:
The effectiveness of controls will be limited by decisions made with human judgment under pressures to conduct business based on the information at hand.

2.  Breakdowns:
Even well designed internal controls can break down.  Employees sometimes misunderstand instructions or simply make mistakes.  Errors may also result from new technology and the complexity of computerized information systems.

3.  Management Override:
High level personnel may be able to override prescribed policies and procedures for personal gain or advantage.  This should not be confused with management intervention, which represents management actions to depart from prescribed policies and procedures for legitimate purposes.

4.  Collusion:
Control systems can be circumvented by employee collusion.  Individuals acting collectively can alter financial data or other management information in a manner that cannot be identified by control systems.
Anonymous Profile
Anonymous answered
Limitation of internal control is:
1. Human being error
2, easier to over ride by management
3. Possible collusion within the company
4. Omission on record because of careless
Anonymous Profile
Anonymous answered
Discuss the generic limitation tha most internal control face
Amen Bukhari Profile
Amen Bukhari answered
The management thinks that cast of a control procedure must not be in excess of potential loss due to errors or frauds. The internal control tends to be directed at anticipated types of transactions and not at unusual transaction. There is possibility of human error due to carelessness, Distraction, mistake of judgment or the misunderstanding of instructions. There may be collusion with parties outside the entity or with employees of the entity.

Due to such collusion there is possibility of circumvention of control. There is chance that a person responsible for exercising control could abuse that responsibility, for example a member of management overriding a control. There is possibility that procedures may become mad-equate due to charges in conditions and compliance with procedures may deteriorate.

The size of business may be small or large. The auditor wants to obtain some degree of assurances in order to express an opinion on financial statements. Many types of controls are being used in large business house. Such controls are not applicable in small business. For example the accounting procedures may be performed by few persons. These persons may have dual responsibility of operation and custody. The segregation of duties may be mission or severally limited.
Anonymous Profile
Anonymous answered
Explain the limitations of internal control systems in hospitals
Anonymous Profile
Anonymous answered
Limitations in internal control:
1. Unqualified/ incapable staff
2. Unreliable staff: Collusion and breaking IC’s by management
Anonymous Profile
Anonymous answered
It doesnt guarantee achievements of objectives.
It ca only provide a reasonable but not absolute assurance of accuracy of financial statements

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