Which of the following are the three primary characteristics of an effective control system in a business?

• A. Authorization, documentation, and reconciliation
• B. Segregation of duties, physical controls, and monitoring
• C. Information processing, communication, and compliance
• D. Control environment, risk assessment, and control activities

Answer: (D)

Verified step by step guidance

1. Understand the concept of an effective control system in a business. It is designed to ensure the reliability of financial reporting, compliance with laws and regulations, and the efficiency of operations.
2. Learn the three primary characteristics of an effective control system: control environment, risk assessment, and control activities. These are fundamental components of internal control as defined by frameworks like COSO (Committee of Sponsoring Organizations of the Treadway Commission).
3. Control environment refers to the overall attitude, awareness, and actions of management and employees regarding the importance of controls. It sets the tone for the organization.
4. Risk assessment involves identifying and analyzing risks that could prevent the organization from achieving its objectives. This includes evaluating the likelihood and impact of risks and determining how to address them.
5. Control activities are the policies and procedures put in place to mitigate risks and ensure that objectives are achieved. Examples include segregation of duties, authorization processes, and physical controls.