Which of the following statements is true regarding managements use of judgement to design, implement, and conduct internal control?
A . The use of judgment enhances managements ability to make better decisions about internal control, but cannot guarantee perfect outcomes.
B . introducing judgment generally diminishes managements ability to make good decisions about internal control
C . It is inappropriate for management to exercise judgement in areas such as specifying and using suitable accounting principles.
D . It is inappropriate for management to exercise judgement in assessing whether components are present, functioning, and operating together
Answer: A
Explanation:
Management’s use of judgment in designing, implementing, and conducting internal control is crucial for adapting to unique circumstances and complexities within an organization.
Enhanced Decision-Making: Judgment allows management to tailor controls to the specific risks and operational realities of the organization, improving overall effectiveness.
Limitations: While judgment improves decision-making, it cannot eliminate all risks or guarantee perfect outcomes due to inherent uncertainties and limitations in predicting all possible scenarios. Appropriate Use: It is appropriate for management to use judgment in applying accounting principles and assessing internal controls’ presence and functioning.
Inappropriateness: It would be incorrect to say that judgment diminishes decision-making capabilities or is inappropriate for assessing internal control components.
Reference: "Internal Control C Integrated Framework" by COSO, which highlights the importance and limitations of judgment in internal control processes.
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