Question

Of the following statements about internal control, which one is not valid?

1) No one person should be responsible for the custodial responsibility and the recording responsibility for an asset.
2) Transactions must be properly authorized before such transactions are processed.
3) Because of the cost/benefit relationship, a client may apply control procedures on a test basis.
4) Control activities reasonably insure that collusion among employees cannot occur.

Answer 1

The invalid statement is 1) No one person should be responsible for custodial and recording responsibilities.

Step-by-step explanation:

Internal control is an important concept in business that involves the organization's policies and procedures to safeguard its assets, ensure the accuracy and reliability of financial records, and promote operational efficiency.

The statement that is not valid is: No one person should be responsible for the custodial responsibility and the recording responsibility for an asset. This statement contradicts the principle of segregation of duties, which is a fundamental internal control practice. Segregation of duties ensures that no single individual has control over all aspects of a transaction or asset, reducing the risk of fraud or error.

The other statements are valid. Proper authorization of transactions, applying control procedures on a test basis, and control activities to prevent collusion among employees are all important components of internal control.