8 INTERNAL CONTROL. Definition Duty  mgt (CEO)  Board  Internal auditor  Employee  External person.

Slides:



Advertisements
Similar presentations
Internal Control in a Financial Statement Audit
Advertisements

OPERATING EFFECTIVELY AT WESD. What is Internal Control? A process designed to provide reasonable assurance the organizations objectives are achieved.
Auditing Concepts.
Internal Control.
The Islamic University of Gaza
OMB Circular A-123 – Management’s Responsibility for Internal Control Policy Applicability Sources of Information Assessment, Documentation and Reporting.
Chapter 7 Control and AIS Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall 7-1.
Review of Introduction to Auditing
INTERNAL CONTROL. INTERNAL CONTROL DEFINED  INTERNAL CONTROL IS A PROCESS - EFFECTED BY AN ENTITY'S BOARD OF DIRECTORS, MANAGEMENT, AND OTHER PERSONNEL.
Standar Pekerjaan Lapangan: Pemahaman Memadai atas Pengendalian Intern Pertemuan 5.
CHAPTER 9 UNDERSTANDING INTERNAL CONTROLS Winter 2004
Chapter 9 The Study of Internal Control and Assessment of Control Risk
Chapter 12 Auditing the Human Resource Management Process McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved.
Internal Control. COSO’s Framework Committee of Sponsoring Organizations 1992 issued a white paper on internal control Since this time, this framework.
Internal Control in a Financial Statement Audit
Internal Control. COSO’s Framework Committee of Sponsoring Organizations 1992 issued a white paper on internal control Since this time, this framework.
Sarbanes-Oxley Project Summary of COSO Framework Presented by Larry Dillehay & Scott Reitan Parkfield Group LLC.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Financial Audit Autonomous Bodies Internal Control and Risk Assessment Session Internal Control and Risk Assessment.
Elements of Internal Controls Preventing Fraud, Waste, and Abuse in Urban and Rural Transit Systems.
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 07 Internal Control McGraw-Hill/IrwinCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Chapter 5 Internal Control over Financial Reporting
Considering Internal Control
Internal Control in a Financial Statement Audit
BusinessAllstars.com 1 BusinessAllstars.com Presents Copyright © 2004 by Gainbridge Associates All right reserved This material may not be used or reproduced.
NO FRAUD LEFT BEHIND The Effect of New Risk Assessment Auditing Standards on Schools Runyon Kersteen Ouellette.
Internal Control in a Financial Statement Audit
9 - 1 ©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Internal Control and Control Risk Chapter 9.
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley Internal Control and Control Risk Chapter 10.
Learning Objectives LO5 Illustrate how business risk analysis is used to assess the risk of material misstatement at the financial statement level and.
Evaluation of Internal Control System
Evaluation of Internal Control System. Learning Objective 1 Contrast management’s need for internal control with the auditor’s need to consider internal.
Business and Information Process Rules, Risks and Controls.
Chapter 6 Internal Control in a Financial Statement Audit Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution.
[Hayes, Dassen, Schilder and Wallage, Principles of Auditing An Introduction to ISAs, edition 2.1] © Pearson Education Limited 2007 Slide 7.1 Internal.
CHAPTER 5 INTERNAL CONTROL OVER FINANCIAL REPORTING.
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 6-1 Chapter 6 CHAPTER 6 INTERNAL CONTROL IN A FINANCIAL STATEMENT AUDIT.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 6-1 Chapter Six Internal Control in a Financial Statement Audit.
BA 427 – Assurance and Attestation Services Lecture 21 Tests of Controls.
A Guide for Management. Overview Benefits of entity-level controls Nature of entity-level controls Types of entity-level controls, control objectives,
Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition Modern Auditing: Assurance Services and the Integrity of Financial.
Pertemuan 15 Business and Information Process Rules, Risks, and Controls Matakuliah: M0034 /Informasi dan Proses Bisnis Tahun: 2005 Versi: 01/05.
Internal Control Chapter 7. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-2 Summary of Internal Control Definition.
©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley Section 404 Audits of Internal Control and Control Risk Chapter.
Copyright © 2007 Pearson Education Canada 9-1 Chapter 9: Internal Controls and Control Risk.
1 CHAPTER 5 - b INTERNAL CONTROL OVER FINANCIAL REPORTING.
©©2012 Pearson Education, Auditing 14/e, Arens/Elder/Beasley Considering Internal Control Chapter 10.
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall. Chapter
McGraw-Hill/Irwin © The McGraw-Hill Companies 2010 Internal Control in a Financial Statement Audit Chapter Six.
Internal Control. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-2 Summary of Internal Control Definition A process...designed.
Chapter 6 Internal Control in a Financial Statement Audit McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
©2005 Prentice Hall Business Publishing, Auditing and Assurance Services 10/e, Arens/Elder/Beasley Internal Control and Control Risk Chapter 10.
Internal Control Chapter 7. McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. 7-2 Summary of Internal Control Definition.
Chapter 12 Auditing the Human Resource Management Process McGraw-Hill/Irwin ©2008 The McGraw-Hill Companies, All Rights Reserved.
SUNY Maritime Internal Control Program. New York State Internal Control Act of 1987 Establish and maintain guidelines for a system of internal controls.
SUNY Maritime College Internal Control Program. New York State Internal Control Act of 1987 Establish and maintain guidelines for a system of internal.
Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at.
Auditing Concepts.
Internal Control in a Financial Statement Audit
Internal Control Evaluation: Assessing Control Risk
Internal Control Principles
Question 4-1 Which of the following statements concerning noncompliance by clients is correct?    A.  An auditor's responsibility to detect noncompliance.
Internal Control in a Financial Statement Audit
Defining Internal Control
INTERNAL CONTROLS AND THE ASSESSMENT OF CONTROL RISK
Internal Control Internal control is the process designed and affected by owners, management, and other personnel. It is implemented to address business.
Presentation transcript:

8 INTERNAL CONTROL

Definition Duty  mgt (CEO)  Board  Internal auditor  Employee  External person

Components of Internal control-ISA315 Control environment Risk assessment Information and communication Control activities Monitoring

Control Environment Organizational Structure Commitment to Competence Participation by those charged with governance Management’s Philosophy and Operating Style Integrity and Ethical Values Assignment of Authority and Responsibility Human Resources Policies and Practices

Entity ’ s risk assessment process Identifying BR relevant to financial reporting objectives Estimating the significance of the risk Assessing the likelihood of their occurrence Deciding upon actions to address those risks

Information and communication Relevant to F/R objectives Including the F/R system, consists of procedures and records established to initiate, record, process, and report entity transaction/events/condition and to maintain accountability for related assets, liabilities and equity.

Method and record Identify and record all valid transactions. Describe on a timely basis the transactions in sufficient detail to permit proper classification of transactions for financial reporting. Measure the value of transactions in a manner that permits recording their proper monetary value in the financial statements. Determine the time period in which transactions occurred to permit recording of transactions in the proper accounting period. Present properly the transactions and related disclosures in the financial statements.

Control activities — SOAP MAPS Segregation of duty Org. structure Authorization and approval Physical Mgt Arithmetic and accuracy Personnel Supervision

Monitoring of controls Internal audit function

Small companies-the problem of control Override controls Segregation of duties

Inherent Limitation ---cost-benefits -applied to systematic transaction ---faulty judgments ---simple error or mistake ---circumvented by the collusion of two or more people ---abuse of authority and override by mgt

Why IC interest mgt Stop things going missing and to make some sense of how the business is doing IC is the process designed and effected by those charged with governance, mgt, and other personnel to provide reasonable assurance about the achievement of the entity ’ s objectives designed and implemented to address identified business risks that threaten the achievement of any of these objectives.

Why IC interests the external auditor Reduce the amount of substantive testing of transactions and balances — relate to assertion

Importance of Control Risk Lower Control Risk Less audit work/ work/Evidence

Why IC interests the internal auditor Key objective of internal auditor is to review the org. ’ s system of IC and to provide assurance that the corp. gov. requirements are being met. To assure that -- the controls in place -- Operating effectively

Process of Understanding Internal Control and Assessing Control Risk Process of Understanding Internal Control and Assessing Control Risk Obtain Understanding : Design and Operation AssessPreliminaryCR Further Assess CRDecideDR,SubstantiveTests Tests of Controls

Procedures to Gain an Understanding Narrative notes Org. chart ICQs / Checklist Flowcharts Narrative notes Org. chart ICQs / Checklist Flowcharts ExaminingInspectingInterview/inquiryTracing/walk-throughobservingExaminingInspectingInterview/inquiryTracing/walk-throughobserving

Evaluating the IC system –CR Assess whether controls exist (Weak IC) a. No controls CR = Max a. No controls CR = Max b. Not cost-effectiveCR = Max b. Not cost-effective CR = Max Extensive substantive test Assess whether controls exist (Weak IC) a. No controls CR = Max a. No controls CR = Max b. Not cost-effectiveCR = Max b. Not cost-effective CR = Max Extensive substantive test Yes ?

Evaluating the IC sys Yes, controls exist (Strong IC) 1.Perform tests of controls 2.Revise CR 3. Reduced substantive test Yes, controls exist (Strong IC) 1.Perform tests of controls 2.Revise CR 3. Reduced substantive test

Auditing in a CIS environment The overall objective of an audit in a CIS environment does not change The CIS is likely to have an effect on IR and CR. The use of IT affect the way that control activities are implemented The auditor should consider whether specialized skill are needed in the audit (use the work of an expert)

Classification of controls General controls Application controls --programmed controls --manual controls

general control Programmed application control Manual application control Transactions Relate to all computer application Relate to specific computer application

General controls — ISA 315 Policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information system. -- data center and net work operation -- sys software acquisition, change and maintenance -- access security (operational control) -- Application sys acquisition, development and maintenance

Application control Manual or automated procedures that typically operate at a business process level Designed to ensure the integrity of the accounting records Relate to specific control procedures used to initiate, record, process and report transaction or other financial data. Ensure transactions occurred are authorized, completely and accurately recorded and processed timely

Application controls Control over input Control over processing Controls over output Master file control

Further examples of selected controls Manual controlsManual controls -- physical controls -- back-up disks -- data filing -- documentation --staff training --proofing Programmed controlsProgrammed controls -- passwords -- date/time stamps -- prompts --check digits -- Batch totals and hash totals -- Reasonableness checks -- Existence checks -- Dependency checks