1 / 16

Chapter 3 Control Sturcture

Chapter 3 Control Sturcture. ACCT620 Internal Auditing Otto Chang Professor of Accounting. COSO’s Definition of Control.

tacita
Download Presentation

Chapter 3 Control Sturcture

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 3 Control Sturcture ACCT620 Internal Auditing Otto Chang Professor of Accounting Otto Chang

  2. COSO’s Definition of Control • Internal control is a process effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: • Effectiveness and efficiency of operations. • Reliability of financial reporting • Compliance with applicable laws and regulations. The Treadway Commission of the Committee of Sponsoring Organizations (AICPA, IIA, FEI, AAA and IMA) Otto Chang

  3. Importance of Control • Control is a major element of management. Management is responsible for controlling the operations of an organization. • The internal auditor is responsible for establishing (recommending) the internal controls necessary to assist management in meeting its responsibilities. Otto Chang

  4. Primary Objectives of Control • Propriety of information (reliability and integrity) • Compliance with rules (policies, plans, procedures, laws and regulations) • Safeguarding assets • Efficient use of resources • Accomplishment of objectives (for operations and programs) Otto Chang

  5. Types of Control • External controls: • From outside the organization. (Anti-pollution laws, SEC) • Internal controls: • Preventive controls. • Detective controls. • Corrective controls. • Directive controls. • Compensating controls. Otto Chang

  6. Internal Controls • Preventive controls. Prevent undesirable outcomes before they happen. • Detective controls. Identify undesirable outcomes when they do happen. • Corrective controls. Make sure corrective action is taken to reverse the undesirable outcomes. • Directive controls. Designed to produce positive results. e.g., training and supervision. • Compensating controls. Otto Chang

  7. The Components of Internal Control • Control environment (sets the tone for the organization) • Risk assessment (identify and analyze relevant risks) • Control activities (policies and procedures that help insure that management directives will be carried out) • Information and communication (requires timely communication) • Monitoring (assesses the quality of the control) Otto Chang

  8. Methods of Internal Control • Organization controls • Operational controls • Controls for personnel management • Review control • Suitable facilities and equipment Otto Chang

  9. Organization Controls • Purpose, Authority, and responsibility • Organizational structure • Decision Authority • Job Descriptions (including segregation of related duties) Otto Chang

  10. Operational Controls • Planning • Budgeting • Accounting and Information systems • Documentation • Authorization • Policies and procedures • Orderliness Otto Chang

  11. Controls for Personnel Management • Recruiting and selection of suitable personnel • Orientation, training, and development • Supervision Otto Chang

  12. Review Control • Review of Individual employees • Internal review of operations and programs • External reviews (e.g., by independent auditors) • Peer review Otto Chang

  13. Requirements of the Foreign Corrupt Practices Act (FCPA) • An internal control system must assure • Transactions executed as authorized • Transactions are recorded in a manner that permits accounting and reporting per GAAP and maintains accountability for assets • Access to assets as authorized by management • Provides a comparison of assets on hand with the records and provides for actions to be taken when there are differences Otto Chang

  14. Reasons for Control Non-function • Apathy • Fatigue • Executive override • Complexity • Poor communication • Alteration to obtain more efficiency • Conflicts of interest Otto Chang

  15. Steps in Developing Control Structure • Developing a control environment • Risk assessment • Identifying general and specific controls • Tying general controls to specific controls • Selecting transactional controls • Planned redundancy • Cost/Benefits considerations • Continuous monitoring Otto Chang

  16. Describing Internal Control Systems • Narrative description • Flowcharting • Combined flowcharting and narrative descriptions • Internal control questionnaires (ICQs) Otto Chang

More Related