AA – L2 – SA – Q5.6 – Internal Control Components

Select the appropriate component of a system of internal controls for each of the below examples.

  1.   The authorizing of inventory write-offs prior to inventory being scrapped.
  2.   The preparation of a reconciliation between the receivable’s ledger control account and the receivables ledger
    A   Control environment
     Control activity
     Information system and communication
     Information system and communication
    E   Control environment
    F   Control activity

B, F

Explanation:

  1. Authorizing inventory write-offs is a control activity, as it involves specific actions to ensure proper financial reporting (B).
  2. Preparing a reconciliation between the receivables ledger control account and the ledger is also a control activity, ensuring accuracy of financial records (F). Control environment and information system components involve broader aspects, not specific actions. B and F are correct.