Internal Control Flashcards
(36 cards)
Internal Control
A process affected by an entities board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives, reporting and compliance
COSO
The Committee of Sponsoring Organisations of the Treadaway Commission.
Has the support of Securities Exchange Commission which is the body in charge of implementing the Sarbaned-Oxley Legislation in UK.
US Standard approach to internal controls which provides a framework for assessing risk management and internal controls.
FRC
Financial Reporting Council.
Highlights that risk management and internal control systems encompass the policies, culture, organisation, behaviours, processes and systems that are:
Effective and efficient at assessing. risks and responding appropriatly
Help to reduce the liklihood and impact of poor decision making or risk taking that exceeds the levels decided by the board, human error
Help to ensure the quality of internal and external reporting.
Help ensure compliance with applicable laws and regulations and internal policies.
The Board need to consider:
The operation of controls and processes
Effectiveness and costs and benefits of controls
the impact of the values and culture of the company, and thee way that teams and individuals and incentivised, on the effectiveness of the systems.
RORCS
The objectives of any system of internal controls.
Risk management
Operations
Reporting
Compliance
Safeguarding Assets
Limitations of internal controls
Can provide reasonable assurance but never any more than that because of inherent limitations
Elements of internal control - COSO Cube
Illustrates how internal controls operate accross three dimentions, making it very flexible.
It includes the objectives in relation to operations, reporting and compliance, the comonents of internal contol and the levels of the organisation where the control applies.
COSO Component and explanation
Advantages and disadvantages of internal control frameworks
The different types of controls
Prevent, detect, correct and direct. Relates to human error or waste (employee time, inventory etc).
Discretionary controls
Non-discretionary controls
Voluntary and mandated controls
General and application controls
Financial controls
Non financial controls
Control procedures
Can be remmebered by APIPS. They are. the. most common forms of control activities
Control procedures
The activities that make up any system of internal control
Controls over financial reporting
Need to be focussed on key financial reporting objectives to ensure appropriate controls are implemented rather than standard ones that may not be helpful for the business.
Other important controls to ensure the accuracy of financial reporting information includes
Monitoring - types of information
The board of directors needs a wide range of information that. will help n themonitoring of effective. risk management and systems of internal control.
Levels of information
Qualities of good information - ACCURATE
Reviewing internal controls
