Which of the following must be in existence as a precondition to developing an effective system of internal controls?

Which of the following must be in existence as a precondition to developing an effective system of internal controls?
A . A monitoring process,
B . A risk assessment process.
C . A strategic objective-setting process.
D . An information and communication process.

View Answer

Answer: B

Explanation:

A risk assessment process is a crucial precondition for developing an effective system of internal controls. It helps identify and analyze risks relevant to achieving the organization’s objectives, thereby informing the design and implementation of appropriate controls to mitigate those risks. This foundational step ensures that the internal controls are aligned with the specific risk landscape of the organization.

Reference: COSO Framework on Internal Control, Principle Related to Risk Assessment