Name two key internal control practices and their importance.

Name two key internal control practices and their importance.

• A. Centralization of authority and delayed reconciliations
• B. Cash budgeting and variance analysis
• C. Separation of duties
• D. Inventory valuation and depreciation

Answer: (C)

Internal controls hinge on creating checks and balances so no single person can initiate, record, and vault assets without oversight. Separation of duties is particularly powerful because it splits these responsibilities among different people, making it much harder for errors or fraudulent activity to go unnoticed. When one person can authorize a transaction, another records it, and a third handles the cash or goods, discrepancies are more likely to be detected and investigated, since at least two people are involved in the process and there are independent checkpoints. This division of tasks builds accountability and creates a natural system of verification. Other options either describe broader management techniques or practices that don’t constitute core preventive controls. Centralizing authority can reduce independent review and slow detection of problems, which weakens internal control. Planning tools like cash budgeting and variance analysis help monitor performance but don’t by themselves prevent or detect misstatements in day-to-day operations. Asset valuation and depreciation relate to measurement and estimation, not the controls that prevent or detect errors and fraud.

Internal controls hinge on creating checks and balances so no single person can initiate, record, and vault assets without oversight. Separation of duties is particularly powerful because it splits these responsibilities among different people, making it much harder for errors or fraudulent activity to go unnoticed. When one person can authorize a transaction, another records it, and a third handles the cash or goods, discrepancies are more likely to be detected and investigated, since at least two people are involved in the process and there are independent checkpoints. This division of tasks builds accountability and creates a natural system of verification.

Other options either describe broader management techniques or practices that don’t constitute core preventive controls. Centralizing authority can reduce independent review and slow detection of problems, which weakens internal control. Planning tools like cash budgeting and variance analysis help monitor performance but don’t by themselves prevent or detect misstatements in day-to-day operations. Asset valuation and depreciation relate to measurement and estimation, not the controls that prevent or detect errors and fraud.