Limitations of Internal Control

Limitations of Internal Control

1. Cost
The management thinks that cost of a control procedures must not be in excess of potential loss due to error or frauds.

2. Transactions
The internal control tends to be directed a anticipated types of transactions and not at unusual transactions.

3. Error
There is possibility of human error due to carelessness distraction, mistake of judgement or the misunderstanding of instructions.

4. Circumstances
There may be collusion with parties outside the entity employees of the entity. Due to such collusion there is possibility of circumvention of control.

5. Responsibility
There is chance that a person responsible for exercising control could abuse that responsibility, for example, a member of management overriding a control.

6. Conditions
There is possibility that procedure may become inadequate due to changes in conditional and compliance with procedure may deteriorate.