Limitations of Internal Controls - Financial Accounting

The video tutorial discusses internal controls, emphasizing their limitations due to human involvement, such as human error and fraud. It highlights the importance of distinguishing between mistakes and intentional fraud, noting the different repercussions. The tutorial also covers the cost-benefit analysis of implementing internal controls, using the example of camera placement in a classroom to illustrate the concept of overkill and cost-effectiveness.

What is a key limitation of internal controls due to their human origin?

• They are always accurate.

• They can be automated by AI.

• They are subject to human error and fraud.

• They are cost-free to implement.

Which of the following best describes human error in the context of internal controls?

• An unintentional mistake, such as a misjudgment.

• A deliberate attempt to bypass controls.

• A technological malfunction.

• A cost-saving measure.

How does human fraud differ from human error in internal controls?

• Fraud is unintentional, while error is deliberate.

• Fraud is a technological issue.

• Fraud involves intent to deceive, while error is accidental.

• Fraud is less severe than error.

What is a key consideration when implementing internal controls in terms of cost?

• The more expensive, the better.

• Cost should be ignored if controls are effective.

• Balancing cost with the effectiveness of controls.

• Only use the cheapest options available.

In the classroom example, why is using 40 cameras considered overkill?

• It is too costly for the benefit gained.

• It is technologically impossible.

• It does not cover all students.

• It is not effective.