CA RR, the internal auditor of ABC Ltd., a medium-sized trading company, was reviewing the company's internal control system as part of his audit procedures. He noticed following instances where errors and lapses occurre

CS Professional · Internal and Forensic Audit · PYQS · June 2026
CA RR, the internal auditor of ABC Ltd., a medium-sized trading company, was reviewing the company's internal control system as part of his audit procedures. He noticed following instances where errors and lapses occurred: An employee failed to take action on an important report due to lack of understanding of its content. The finance team made duplicate payments. Two employees colluded to override a system check related to customer credit limits. The owner approved certain transactions bypassing standard operating procedures, raising concerns about management override. Duties were not segregated properly due to limited staff strength. CA RR discussed these findings with the management and explained that such control failures, despite the existence of internal controls, are not rare. He also highlighted that internal control systems inherently have certain limitations. Based on the above, what is CA RR trying to communicate to the management ?

Answer & Explanation:

In the given case, CA RR, the internal auditor, identified various lapses in the company's internal control system, such as employees failing to act on important reports, duplicate payments, collusion to override system checks, management override of procedures and lack of segregation of duties due to limited staff. While discussing the findings of the audit with management, he explained that the internal controls have certain limitations and therefore, despite the presence of internal controls in the Company, certain failures may occur due to inherent limitations of internal control.

Topics: Internal Control

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