internal control flashcards

a bank lockbox system

assures accountability control as cash enters the client’s cash receipts sys­tem.

auditor should document understanding of internal control

regardless of clients records

inherent limitation to entitys internal control

human judgement

payroll dept

recordkeeping

prepares payroll

controller

reviews payroll

treasurers dept

Custody

prepares and distributes checks

duty of loyalty

describes a fiduciary’s loyalty to a corporation

duty of care

directors must use care and be diligent when making decisions on behlf of corp shareholders

due diligence

the care a reasonable person should take before entering into an agreement or transaction with another party

corporate officers

can enter into ordinary contracts on behalf of corporation

audit committee

responsible for engaging evaluating and termincating external audit firm

board of directors

-appoints evaluates and terminates corporate officers

-sole responsibility to declare dividends

-corporate officers cannot do the same

shareholders or courts

may remove a director

external auditor may provide advisory or educational assistance that helps client understand and proceed with compliance efforts when

• mgmt retains all decision making authority

• auditor does not design or implement actual control or procedures

• auditors role is limited to explaining requirements, offering recommendations, helping coordinate project activities (mgmt makes ultimate calls)

plan of internal control separates duties of

authorization, record keeping, custody

limitation of internal controls (definition)

are inherent and arise from the nature of controls and the environment in which they operate

limitations

• Human error

• collusion

• mgmt override

• obsolescence

• cost benefit constraints

• limited scope

materiality

is not carried forward to current audit

what controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed

two company officials have joint control and they are kept in a bank safe-deposit box.

key components that make up COSO internal control integrated framework

Control activities

Risk Assessment

Information adn communication

Monitoring of controls

Environment

Who should do internal verifications of cash balances

Internal Auditor

management override

when senior management intervenes in control processes bypassing or overriding them to achieve a specific outcome

compliance objective definition

ensures that an organization adheres to all relevant laws regulations and contractual obligations including

compliance objective includes

• tax laws

• employment regulations

• environmental standards

• industry specific regulations

corporate governance

refers to the manner in which an entity is managed and governed

includes entity mgmt