A system of ______________, in the broad sense, includes controls, which may be characterized as either accounting or administrative.

Question

Options

• AExternal controls
• BFinancial controls
• CInternal controls
• DInvestor controls

• A
  15% (4)
• B
  4% (1)
• C
  73% (19)
• D
  8% (2)

Explanation

Internal controls (C) is correct because the formal framework of internal control - as defined by accounting standards and bodies like COSO - explicitly classifies controls into two broad categories: accounting controls (safeguarding assets, ensuring financial record accuracy) and administrative controls (operational efficiency, policy adherence, compliance). This dual-category structure is a foundational concept in auditing and internal control theory.

Why the distractors are wrong:

• A (External controls) refers to oversight mechanisms outside an organization (regulators, auditors, market forces) - these are not typically subdivided into accounting vs. administrative categories.
• B (Financial controls) is too narrow; it describes only one dimension of control, not a system that encompasses both accounting and administrative branches.
• D (Investor controls) is not a recognized term in internal control frameworks; investors exert influence through governance, not a formalized "system of controls."

Memory tip: Think of the word "Internal" - controls that live inside the organization are the ones management designs, and those internal designs split into "how we count things" (accounting) and "how we run things" (administrative). If the control lives inside the org, it's an internal control.

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