Chapter 9: Internal Controls

What is the primary purpose of internal control in a company?

To minimize risk and help a company achieve its objectives.

What are the key assurances provided by good internal control?

Reliability of information, safeguarding of assets, compliance, and efficiency of operations.

What does the Foreign Corrupt Practices Act (FCPA) prevent?

It prevents companies from bribing foreign officials to obtain business.

What framework is designed to help meet stakeholder needs and provide a holistic approach to internal control?

COBIT framework.

What is the COSO framework's Control Environment?

It refers to the tone at the top set by management.

What are the 5 components of the COSO-IC framework?

Control environment, risk assessment, control activities, information and communication, and monitoring activities.

What is inherent risk?

The risk that exists before plans are made to control it.

What are the conditions present for fraud to occur?

Pressure, opportunities, and rationalization.

Name two types of fraud in the context of internal control.

Misappropriation of assets and financial statement fraud.

What is the role of management in internal control?

To hire competent and ethical employees, establish good organizational structure, and hold managers accountable.

What is the board's role in internal control?

The board's role is one of oversight.

What are preventive controls?

Controls that deter problems from occurring.

What do corrective controls do?

They identify and correct problems and help recover from them.

What is risk response in internal controls?

It includes reducing, accepting, sharing, or avoiding risk.

What does the belief system in levers of control help employees understand?

It helps employees understand the company's mission and vision.

What is the purpose of the boundary system in internal controls?

To establish the boundaries of ethical employee behavior.

What is a diagnostic control system?

A system that measures, monitors, and compares actual performance to goals.

Why is it important to have oversight by the Board of Directors?

To ensure internal control oversight and accountability.