CPA Audit Practice Exam 2025 – Complete Prep Resource

Internal controls are designed to provide reasonable assurance regarding the achievement of objectives related to reliability of financial reporting, compliance with laws and regulations, and operational efficiency. However, despite their importance, internal controls have inherent limitations.

Human error is a significant limitation of internal controls because individuals may misinterpret instructions, fail to follow procedures, or make mistakes during complex data entry or processing tasks. Such errors can undermine the effectiveness of controls, leading to potential inaccuracies in financial reporting or breaches of compliance. This vulnerability is inherent to any process involving human participation, emphasizing the need for continual training, supervision, and evaluation of internal controls to mitigate risks associated with human oversight.

In terms of the other options, it is important to note that while internal controls aim to be effective, they are not infallible, hence the assertion that they are "always effective" is incorrect. Internal controls also require regular evaluation to ensure they are operating as intended and to adapt to changing conditions; thus, the notion that they "do not need evaluation" is misleading. Additionally, management override is a valid concern; however, it represents a separate issue regarding the governance of controls rather than an inherent limitation like human error. Overall, recognizing the limitation of human error assists organizations in developing more robust internal control