Internal controls, important to business and audit

Question 1

Risk committee

Answer 1

oversee the system of Internal control

Question 2

Principle

Answer 2

the board should establish procedures to manage risk, oversee internal control framework, and determine the nature and extent of the principal risks the company is willing to take in order to achieve its long-term strategic objectives

Question 3

What is internal control for?

Answer 3

• achieve business objectives
• manage risk effectively
• safeguard company’s assets and shareholders’ investments

Question 4

three key objectives of system of internal control

Answer 4

• reliable financial reports
• effective and efficient business operations
• ensures compliance with laws and policies

Question 5

5 components of internal control

Answer 5

• the control environment
• the entity’s risk assessment process
• the information system
• control activities
• monitoring of controls

Question 6

the control environment

Answer 6

• is the overall attitude, awareness and actions of management regarding internal controls and their importance.
• ‘tone form the top’
• sets clear authority and responsibility

Question 7

the entity’s risk assesment process

Answer 7

• treated as a separate system in ‘system of risk management’
• an important part of the overall system of control

Question 8

Information systems

Answer 8

• good accurate information
• management information for planning, decision making and control

Question 9

control activities

Answer 9

• Actions (interventions) that increase the likelihood of specific business objectives being achieved

Question 10

SPAMSOAP - control activities

Answer 10

Segregation of duties
Personnel
Accounting
Management
Supervision
Organisation
Authorisation
Physical

Question 11

Internal control process example steps

Answer 11

• identifying risk
• identifying necessary controls
• External or internal auditor controls

Question 12

controls - inherent limitations

Answer 12

• infrequent, unusual transactions
• human error
• management override
• collision
• changes in environment

Question 13

monitoring of controls

Answer 13

• Aims to ensure the system of internal control is adequate and operates effectively, with weaknesses reported and root causes corrected.
• on going motoring of activities by line managers
• separate evaluations supported by internal audit
• external audit can be seen as monitoring controls