Internal Control Flashcards

Flashcards about Internal Control and Its Environment

Internal Control

A set of policies and procedures adopted by a firm to provide reasonable assurance that their objectives will be met; ensures errors and irregularities are prevented, detected, and corrected in a timely manner.

Accounting Controls

Policies and procedures which aim to safeguard company’s assets and to ensure reliability of accounting records.

Administrative Controls

Policies and procedures to encourage adherence to management policies and to promote operational efficiency.

Elements of Internal Control

Control environment, Control procedures, Accounting and communication system, Risk assessment, Monitoring

Control Environment

The overall attitude, awareness, and actions of directors and management regarding the internal control system and its importance in the entity.

M Management philosophy and operating style

O Organizational structure

F Functioning of BOD / Audit committee

A Assignment of responsibilities

M Management controls

P Personnel policies

E External Influences

Factors reflected in control environment

Control Procedures

Policies and procedures in addition to the control environment which management has established to achieve the entity’s specific objectives.

A Authorization

S Segregation

D Documentation

A Access

R Reviews

Fundamental principles of controls

Accounting and Communication System

Interrelated set of components which aims to convert data into meaningful information and providing such information to authorized users.

Risk Assessment

Ability of management to take actions in response to business risks and providing solutions to identified problems.

Risk Assessment

Capability of management to find out root-cause of problems and formulating appropriate solutions thereon.

Monitoring

To provide reasonable assurance that the other elements of internal control are being applied as prescribed. Normally performed by internal audit department.

Management and those in-charge of Governance

Primary party responsible in designing and implementing internal controls.

Employees

Entrusted with the PDC of internal controls (prevention, detection, correction).

Auditor

Understanding IC for planning purposes.

Maximum level

No tests of controls; document understanding of the design and document the conclusion of assessment.

Below Maximum level

Identify controls likely to be effective; perform tests of controls; document understanding of the design; document conclusion of assessment; and document basis for conclusion.