Prepared by Wa'el Bibi,CPA,CIA,CISA1 Internal Control Integrated Framework An Overview.. Bibi Consulting COSO’s Source: COSO’s Internal Control Integrated Framework

Prepared by Wa'el Bibi,CPA,CIA,CISA2 What is COSO? Who are the sponsors?

Prepared by Wa'el Bibi,CPA,CIA,CISA3 What Is Internal Control ? “ A process effected by an entity’s board of directors,management and other personnel,designed to provide reasonable assurance regarding the achievements of objectives in the following categories:  Effectiveness & efficiency of operations.  Reliability of financial reporting.  Compliance with applicable laws and regulations.”

Prepared by Wa'el Bibi,CPA,CIA,CISA4  Internal control is a process. It is a means to an end, not an end in itself.  Internal control is effected by people. It ’ s not merely policy manuals and forms, but people at every level of an organization.  Internal control can be expected to provide only reasonable assurance, not absolute assurance, to an entity ’ s management and board.  Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.

Prepared by Wa'el Bibi,CPA,CIA,CISA5 Components Of Internal Control  Control Environment.  Risk Assessment.  Control Activities.  Information & Communication.  Monitoring.

Prepared by Wa'el Bibi,CPA,CIA,CISA6

17 Principles Prepared by Wa'el Bibi,CPA,CIA,CISA7 Source: Deloitte

Prepared by Wa'el Bibi,CPA,CIA,CISA8 Control Environment  Sets the tone of the organization.  The foundation for all other components.  It includes the integrity, ethical values and competence of the people.  Reflects: management’s philosophy & operating style, the way management assigns authority and responsibility and organizes and develops its people, and the attention and direction provided by the board of directors.

Prepared by Wa'el Bibi,CPA,CIA,CISA9 Risk Assessment  Every entity faces internal &external risks.  Every entity sets objectives.  Risk assessment is the identification and analysis of relevant risks to achievements of the objectives.

Prepared by Wa'el Bibi,CPA,CIA,CISA10 Control Activities  The policies and procedures that help ensure management directives are carried out.  They help ensure that necessary actions are taken to address risks.  Control activities occur throughout the entity at all levels and in all functions.  They include activities such as approvals, authorization, reconciliations and segregation of duties.

Prepared by Wa'el Bibi,CPA,CIA,CISA11 Information & Communication  Relevant information must be identified, captured and communicated in a form & timeframe that enables people to carry out their responsibilities.  Information systems produce reports containing operational, financial and compliance –related information that make it possible to run and control the business.  Effective communication must occur in a broader sense, flowing down, across and up the organization.

Prepared by Wa'el Bibi,CPA,CIA,CISA12 Monitoring  Internal control systems need to be monitored.  Types of monitoring: - ongoing during the course of operations. - evaluation for which the scope and frequency will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures.

Prepared by Wa'el Bibi,CPA,CIA,CISA13 Responsibilities Who is responsible for internal control ? Everyone ! Board of Directors : Governance,guidance & oversight Management : CEO is the owner Internal Auditors: evaluate & monitor Other personnel :information and communication

Prepared by Wa'el Bibi,CPA,CIA,CISA14 What Internal Control Can Do  It can help achieve performance & profitability targets.  It can help prevent loss of resources.  It can help ensure reliable financial reporting.  It can help ensure compliance with laws. It can help an entity get to where it wants to go,and avoid pitfalls and surprises along the way.

Prepared by Wa'el Bibi,CPA,CIA,CISA15 What Internal Control Cannot Do  It cannot ensure success.  It cannot ensure the reliability of financial reporting.  It cannot ensure compliance with laws and regulations. Internal controls,no matter how well designed and operated,can provide only reasonable assurance to management regarding achievements of an entity’s objectives.

Prepared by Wa'el Bibi,CPA,CIA,CISA16 Limitations of Internal Control  Judgement.  Breakdowns.  Management override.  Collusion.  Costs Versus Benefits.

Prepared by Wa'el Bibi,CPA,CIA,CISA17 End of COSO Presentation

Prepared by Wa'el Bibi,CPA,CIA,CISA18 Types of Controls  Preventive  Detective  Corrective  Directive

Prepared by Wa'el Bibi,CPA,CIA,CISA19 Preventive Controls  Are designed to discourage errors or irregularities from occurring.  They are more cost-effective than detective controls.  Examples: - Segregation of duties - Authorization - Firewalls - Passwords

Prepared by Wa'el Bibi,CPA,CIA,CISA20 Detective Controls  Are designed to search for and identify errors after they have occurred.  They are more expensive than preventive controls.  Examples: - Reconcilaitions - Analysis - Periodic Inventory - Surveillance cameras - Audit

Prepared by Wa'el Bibi,CPA,CIA,CISA21 Corrective Controls  corrective controls are designed to restore a system to an approved/last known good state.  Examples: - Anti Virus software. - Adjusting entries.

Prepared by Wa'el Bibi,CPA,CIA,CISA22 Directive Controls  Are designed to provide direction from management. (Actions taken to cause or encourage a desirable event to occur).  Examples: - Job Description - Training - Policies and procedures.