Which statement best describes the principle of separation of duties in internal controls?

Which statement best describes the principle of separation of duties in internal controls?

• A. It assigns authorization, recording, and custody to the same person
• B. It requires that only one person handles all steps
• C. It separates authorization, recording, and custody among different people
• D. It eliminates the need for internal audits

Answer: (C)

Separating duties means dividing the steps of a transaction so no single person handles authorization, recording, and custody. This creates checks and balances: the person approving a transaction isn’t the one recording it or holding the asset, and the person recording isn’t in custody of the asset. This division makes it harder for errors or intentional misuse to go undetected. So the statement that best describes this principle is that authorization, recording, and custody are handled by different people. Centralizing all steps increases the risk of fraud or mistakes, while insisting one person handles everything defeats the control. Audits are still valuable but they don’t replace the need for separation of duties.

Separating duties means dividing the steps of a transaction so no single person handles authorization, recording, and custody. This creates checks and balances: the person approving a transaction isn’t the one recording it or holding the asset, and the person recording isn’t in custody of the asset. This division makes it harder for errors or intentional misuse to go undetected.

So the statement that best describes this principle is that authorization, recording, and custody are handled by different people. Centralizing all steps increases the risk of fraud or mistakes, while insisting one person handles everything defeats the control. Audits are still valuable but they don’t replace the need for separation of duties.