Which is NOT a factor essential to good internal financial controls?

The correct answer is that comprehensive annual budget analysis is not a factor essential to good internal financial controls. While analyzing the annual budget can certainly support the overall financial health and strategic planning of an organization, it does not directly fall within the core components of internal financial controls.

Good internal financial controls primarily focus on ensuring that transactions are processed accurately, that there is accountability among individuals handling finances, and that the organization adheres to legal and regulatory requirements.

Having clear definitions and acceptance of responsibility establishes who is accountable for specific financial tasks and decisions, thus reducing confusion and potential errors. Authority commensurate with responsibility ensures that individuals have the necessary power to execute their duties without unauthorized interference. Proper training equips employees with the knowledge and skills required to perform their roles effectively and comply with financial policies and procedures.

In contrast, while a comprehensive annual budget analysis can enhance decision-making and indicate financial health, it is more of a strategic tool rather than a foundational element of internal controls.