INTERNAL CONTROL. INTERNAL CONTROL DEFINED  INTERNAL CONTROL IS A PROCESS - EFFECTED BY AN ENTITY'S BOARD OF DIRECTORS, MANAGEMENT, AND OTHER PERSONNEL.

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Presentation transcript:

INTERNAL CONTROL

INTERNAL CONTROL DEFINED  INTERNAL CONTROL IS A PROCESS - EFFECTED BY AN ENTITY'S BOARD OF DIRECTORS, MANAGEMENT, AND OTHER PERSONNEL - DESIGNED TO PROVIDE REASONABLE ASSURANCE REGARDING THE ACHIEVEMENT OF OBJECTIVES IN THE FOLLOWING CATEGORIES:

zRELIABILITY OF FINANCIAL REPORTING zEFFECTIVENESS AND EFFICIENCY OF OPERATION zCOMPLIANCE WITH APPLICABLE LAWS AND REGULATIONS

FIVE INTERRELATED COMPONENTS  THE CONTROL ENVIRONMENT  RISK ASSESSMENT  CONTROL ACTIVITIES  INFORMATION AND COMMUNICATION  MONITORING

CONTROL ENVIRONMENT SETS THE TONE OF AN ORGANIZATION, INFLUENCING THE CONTROL CONSCIOUSNESS OF ITS PEOPLE. IT IS THE FOUNDATION FOR ALL OTHER COMPONENTS OF INTERNAL CONTROL, PROVIDING DISCIPLINE AND STRUCTURE.

CONTROL ENVIRONMENT FACTORS INCLUDE THE FOLLOWING:  INTEGRITY AND ETHICAL VALUES  COMMITMENT TO COMPETENCE  BOARD OF DIRECTORS OR AUDIT COMMITTEE PARTICIPATION  MANAGEMENT’S PHILOSOPHY AND OPERATING STYLE  ORGANIZATIONAL STRUCTURE  ASSIGNMENT OF AUTHORITY AND RESPONSIBILITY  HUMAN RESOURCE POLICIES AND PRACTICES

RISK ASSESSMENT  IS THE ENTITY'S IDENTIFICATION AND ANALYSIS OF RELEVANT RISKS TO ACHIEVEMENT OF ITS OBJECTIVES, FORMING A BASIS FOR DETERMINING HOW THE RISKS SHOULD BE MANAGED.

RISKS RELEVANT TO FINANCIAL REPORTING CAN ARISE OR CHANGE DUE TO CIRCUMSTANCES SUCH AS:  CHANGES IN OPERATING ENVIRONMENT  NEW PERSONNEL  NEW OR REVAMPED INFORMATION SYSTEMS  RAPID GROWTH  NEW TECHNOLOGY  NEW LINES, PRODUCTS, OR ACTIVITIES  CORPORATE RESTRUCTURINGS  FOREIGN OPERATIONS  ACCOUNTING PRONOUNCEMENTS

CONTROL ACTIVITIES  THE POLICIES AND PROCEDURES THAT HELP ENSURE THAT MANAGEMENT DIRECTIVES ARE CARRIED OUT.

CONTROL ACTIVITIES THAT MAY BE RELEVANT TO AN AUDIT MAY BE CATEGORIZED AS POLICIES AND PROCEDURES THAT PERTAIN TO:  PERFORMANCE REVIEWS  INFORMATION PROCESSING  PHYSICAL CONTROLS  SEGREGATION OF DUTIES

INFORMATION AND COMMUNICATION  ARE THE IDENTIFICATION, CAPTURE AND EXCHANGE OF INFORMATION IN A FORM AND TIME FRAME THAT ENABLE PEOPLE TO CARRY OUT THEIR RESPONSIBILITIES.

THE AUDITOR SHOULD OBTAIN SUFFICIENT KNOWLEDGE OF THE INFORMATION SYSTEM RELEVANT TO FINANCIAL REPORTING TO UNDERSTAND:  THE CLASSES OF TRANSACTIONS IN AN ENTITY'S OPERATIONS  HOW THOSE TRANSACTIONS ARE INITIATED  THE ACCOUNTING RECORDS, SUPPORTING INFORMATION, AND SPECIFIC ACCOUNTS INVOLVED IN THE PROCESSING AND REPORTING OF TRANSACTIONS  THE ACCOUNTING PROCESSING INVOLVED FROM THE INITIATION OF A TRANSACTION TO ITS INCLUSION IN THE FINANCIAL STATEMENTS  THE FINANCIAL REPORTING PROCESS USED TO PREPARE THE FINANCIAL STATEMENTS

MONITORING  IS A PROCESS THAT ASSESSES THE QUALITY OF INTERNAL CONTROL PERFORMANCE OVER TIME.  THE AUDITOR SHOULD OBTAIN SUFFICIENT KNOWLEDGE OF THE MAJOR TYPES OF ACTIVITIES THE ENTITY USES TO MONITOR INTERNAL CONTROL OVER FINANCIAL REPORTING, INCLUDING HOW THOSE ACTIVITIES ARE USED TO INITIATE CORRECTIVE ACTIONS