ACCA Audit and Assurance (F8) Practice Exam

How many components are identified in Internal Controls?

1. Three

2. Four

3. Five

4. Six

The correct answer is: Five

Internal controls are essential elements that organizations implement to ensure the integrity of financial reporting, compliance with laws and regulations, and the efficiency of operations. The framework most commonly referenced for internal controls is the COSO framework, which identifies five components. These components are: 1. **Control Environment**: This reflects the overall attitude, awareness, and actions of management and those charged with governance concerning the importance of internal controls and their role in the organization. 2. **Risk Assessment**: This involves identifying and analyzing relevant risks to the achievement of objectives, which allows management to determine how those risks should be managed. 3. **Control Activities**: These are the specific actions and procedures established to ensure that management directives are carried out. Control activities can include authorizations, verifications, reconciliations, and performance reviews. 4. **Information and Communication**: This component emphasizes the need for proper communication of information throughout the organization, ensuring that all employees understand their roles in the internal control framework and can report significant information. 5. **Monitoring Activities**: Continuous or periodic assessments of the internal control system are necessary to ensure its effectiveness. This can involve regular audits, performance reviews, or other mechanisms to assess the system's performance and address any deficiencies. Since