Internal Control Limitations
Why Internal Controls Cannot Eliminate All Risk
Even well-designed internal control systems have inherent limitations. As a result, internal control provides reasonable assurance rather than absolute assurance.
- Human error and mistakes.
- Management override of controls.
- Collusion between employees.
- Cost-benefit limitations.
- Changes in business conditions.
Note
Management override and employee collusion can bypass even strong internal controls.
Summary
Internal controls significantly reduce risk but cannot completely eliminate the possibility of material misstatements.