Chapter 7, Problem 1CQ

To determine

Determine among the given options, that is not an element of internal control as per COSO.

Answer to Problem 1CQ

Option b

Explanation of Solution

Internal controls are the controls established within an organization to check errors and frauds within an organization. Establishment and maintenance of internal controls is responsibility of the management.

COSO stands for Committee of Sponsoring Organizations. The five internal control components of COSO are listed as follows:

• Control environment: Establishment of awareness for controls.
• Risk assessment: Assessment of risk for establishment of controls.
• Information and communication: Appropriate communication of the control activities and policies should be maintained.
• Monitoring: Operating effectiveness of the control procedures should be monitored within the organization.
• Control activities: Control activities are the activities undertaken to address risks identified within the organization.

Justification: Risk assessment, monitoring, and information and communication are elements of internal control. Whereas, internal control policies are not a component of internal control formulated by Committee of Sponsoring Organizations (COSO). Control environment and control procedures are components of internal control framework. Hence, the correct answer is option b.