Internal Control

Auditing Theory

What is internal control?

Characteristics of Internal Control

1. It is a process

2. Effected by entity’s personnel

3. provides reasonable assurance

4. geared toward attainment of entity’s objectives

Inherent Limitations of Internal Control

Objectives of internal control

1. Financial: Reliability of financial reporting

2. Operational: Effectiveness and efficiency of operations

3. Compliance: Compliance with applicable laws and regulations

Areas of Internal Control

1. Administrative Control
   - operational and compliance

2. Accounting Control
   - financial

Accounting System Vs. Internal Control System

Accounting System
transactions are processed as a means of maintaining financial records.

Internal Control System

all policies and procedures (internal control) adopted by the management of an entity

Internal Control System is broader than Accounting System

Controls Relevant to the Audit

Matter of Judgment

Primary Concern: Financial Reporting Controls

Components of Internal Control

C.R.I.M.E.

Control Activities

Risk Assessment Process

Information and Communication Systems

Monitoring

Control Environment

Control Environment

Governance and management functions

IM CPA HO

Integrity and Values

Management Philosophy and Operating Style

Commitment to Competence

Participation of BoD

Assignment of Authority and Responsibility

Human Resources Policies and Procedures

Organizational Structure

Risk Assessment Process

IAM

Identify

Assess

Manage

Information and Communication System

PIISO

People

Input or data

Infrastructure (Hardware)

Software

Output or meaningful information

Control Activities

APIPS

Authorization