What are the inherent limitations of Internal Control system?
Internal control can provide only reasonable but not absolute assurance that its objective relating to prevention and detection of errors/frauds, safeguarding of assets etc., are achieved. This is because it suffers from someinherent limitations, such as-
(i) Managements consideration that cost of an internal control does not exceeds the expected
benefits.
(ii) Most controls do not tend to be directed at unusual transactions.
(iii) The potential of human error due to carelessness, misjudgment and misunderstanding of
instructions.
(iv) The possibility that control may be circumvented through collusion with employees or
outsiders.
(v) The possibility that a person responsible for exercising control may abuse that authority.
(vi) Compliance with procedures may deteriorate because the procedures becoming inadequate
due to change in condition.
(vii) Manipulation by management with respect to transactions or estimates and judgements
required in the preparation of financial statements.
(viii) Inherent limitations of Audit.