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Internal 
External 
Evaluating the adequacy and effectiveness of internal controls 

Carried out for the benefit of shareholders 

Part of the business's control system 

Examines the published financial statements 

Internal audit is part of the internal controls within an organisation, checking that the 
existing controls work and how to improve them. External audit is carried out by an 
external accounting firm on behalf of the shareholders to check that the published 
accounts give a true and fair view. 
(b) 
Financial Reporting Review Panel
In the UK, the Financial Reporting Review Panel is responsible for examining and 
questioning the departure from accounting standards by large companies. (Chapters 8 and 
9) 
49 
Yes, as an example of intentional misrepresentation of the financial position of a business
There is potential for inventory to be fraudulently overvalued for accounts purposes. 
(Chapter 10)
50 
All of the above
Trivial and unrelated as some of the options may seem, they are all fraud-prevention controls: 
making it difficult to alter quantities; creating time for frauds to come to light; and highlighting 
deviations from norms. 
(Chapter 10)
51 
Limitation controls
Limit controls limit opportunity for fraud: another example is limiting access to the computer 
network by means of passwords. Segregation of duties means ensuring that functions which 
together facilitate fraud are performed by different individuals: eg separating the cheque signing 
function from the authorisation of payments. Appropriate documentation involves recording, 
authorising and tracking transactions through purchase requisitions, orders, invoices, and so on. 
(Chapter 10)
52 
Requiring signatures to confirm receipt of goods or services 
This should be clear from the context, because of the collusion with customers (if you 
remembered what collusion was). Physical security refers to keeping assets under lock and key: 
not to be dismissed as a fraud prevention measure! Sequential numbering works because it is 
easy to spot if documents are missing. Authorisation policies increase checks and 
accountabilities. 
(Chapter 10)
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