Question

Select the correct answer. Santeria Trading Inc. has manipulated its accounts to inflate its expenditure so it is subject to fewer taxes than it would have to pay otherwise. Which element of the internal accounting control does Santeria fail to comply with? A. policies B. monitoring C. procedures D. risk assessment E. environmental control

Answer 1

Santeria Trading Inc.'s failure to catch manipulation of accounts to inflate expenditure suggests a breakdown in the 'monitoring' element of its internal accounting controls.

Step-by-step explanation:

The element of the internal accounting control that Santeria Trading Inc. fails to comply with, when it manipulates its accounts to inflate its expenditure to pay fewer taxes, is B. monitoring. Monitoring is the process by which an organization checks and assesses the effectiveness of its internal control system. A functioning monitoring component should have caught the manipulation of accounts. Inflating expenditures to reduce tax liability reflects a breakdown in internal controls, where monitoring processes are not effective enough to detect such unethical and illegal recording practices.

Answer 2

The correct answer is C. procedures.

In this scenario, Santeria Trading Inc. has manipulated its accounts to inflate its expenditure, which is a clear violation of internal accounting controls. Procedures are the specific steps and processes that a company establishes to ensure the accuracy and integrity of its financial records.

By manipulating its accounts, Santeria fails to comply with proper accounting procedures, which should include checks and balances to prevent fraudulent activities like tax evasion. Effective procedures would have identified and prevented such manipulation, helping to maintain the company's financial integrity and compliance with tax regulations. Therefore, the correct answer is C. procedures.