[nalratoss]

I’m confused between inherent limitation and actual factor that increases/decreases control risk.

For example. in a SIM of Gleim. I was asked to choose answer in the right hand column that best describes item in the left hand column. I have:

Collusion
Management override

and the options:
A condition that increases control risk
A condition that decreases control risk
A form of documentation for internal control
A COSO component of internal control
An inherent limitation of internal control

I thought collusion is a condition that increases control risk; Management override increases control risk. Turns out they are both inherent limitations of control risk.

How to differentiate between “inherent limitations” and actual factors?

[ThomasHallberg]

Collusion and management override are always a risk no matter how effective the controls are in place. It is inherent, always. A company could have the greatest controls ever and a manager could override it and all the sudden it doesn't detect a misstatement. A company could have the greatest controls ever and two employees could collude and the control will fail to detect a misstatement. Therefore it has no effect on control risk.

[Author]

Replies