Inherent Limitations
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SEC & PCAOB > PCAOB > Auditing Standard No. 2 > Inherent Limitations of Internal Controls
Source:
PCAOB Release 2004-001
March 9, 2004
Page A–12 – Standard
Inherent Limitations in Internal Control Over Financial Reporting
16. Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations. Internal
control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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