Question

as the company accountant the managemnet of nickle company ask you to explain a. the concept of reasonable assurance in internal control and b. the importance of the human factor in internal control

Answer 1

Ans-

1. The concept of reasonable assurance recognizes that the cost of entity's internal control system should not exceed the benefits that are expected to be derived from the system. Thus, an internal control system will not detect every error that might occur because it would be too costly to design such a system. Management override of internal control, personnel error or mistakes and collusion are inherent limitations of internal control.

2. The human factor enters at the very outset, in the design of the internal control system itself. If the managemnt "whether promoters or professional" do not have regard any interest of investors, the internal control too would not be in a way that protects investors.