Internal Control Explained: CTFA Exam Review

A

Internal control refers to the system of policies, procedures, and practices that an organization implements to manage and mitigate risks related to its operations. The goal of internal control is to ensure that the organization achieves its objectives, including efficient and effective operations, reliable financial reporting, and compliance with laws and regulations.

Option A, "the process of controlling the impact of risk related events on a company," is partially correct. Internal control does aim to control the impact of risk-related events on a company. However, this definition only describes one aspect of internal control, specifically its risk management function.

Option B, "the process of planning the processes in order to avoid risk related events to a company," is not an accurate definition of internal control. While planning is a key aspect of internal control, its purpose is not solely to avoid risk-related events. Rather, internal control aims to manage and mitigate risks through a combination of planning, monitoring, and control activities.

Option C, "the process of designing the models to avoid risk related events on a company," is also not an accurate definition of internal control. While designing models and systems to manage risk is a part of internal control, this definition again only captures one aspect of internal control.

Therefore, the correct answer is option D, "All of the above." Internal control encompasses all of the above definitions and more. It is a comprehensive system of policies, procedures, and practices that helps an organization achieve its objectives by managing risks and ensuring compliance with laws and regulations.