Tutorial 4 Review questions: 1- What does the term internal control mean? The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control as: * “ a process, affected 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 2- What are the five components of an internal control framework? i. CONTROL ENVIRONMENT * Influencing the control consciousness in organization * The foundation of all …show more content…
* Management also responsible to create the policies needed to ensure the services are provided effectively and assets safeguarded. * Management is responsible for establishing and maintaining internal control to achieve the objectives of effective and efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. * Management shall consistently apply the internal control standards to meet each of the internal control objectives and to assess internal control effectiveness. The board of directors * The board of directors oversight body guides and directs management in the development and performance of internal control. * Review the effectiveness of the internal control throughout the financial year and up to the date on which the financial statements were signed. * The Board has appointed an Audit Committee from within its ranks to represent the Board in matters concerning the monitoring of the company’s financial reporting and, in relation to the financial reporting, to monitor the efficiency of the company’s internal control, internal audit and risk management. Internal auditor * Evaluate the effectiveness of internal control and recommend improvements. * Examined the compliance with laws, regulations and guidelines. External auditor * Provide another independence view on the reliability of the entity’s external reporting. Other external parties
Furthermore, when the internal control is fixed, the outside auditor can rely on the clients system and less audit testing can be conducted. When everything is improved, the management letter is given to the organization’s top management and not disclosed to the public, (Finkler, S. A., Ward, D. M., & Calabrese, T. D., 2013). Next, is the auditor’s report that entails the opinion letter usually written in three paragraphs and given to the board of trustees. Then, the opinion paragraph is added on to state the organizations financial statements are in accordance of the financial position and followed through with (GAAP). The clean opinion addresses the opinion of the auditor and the overall exercising of professionalism. Also, the complete opinion of the financial statements is to give a representation of the organization. All other opinions may be included and can be addressed by adverse opinions if (GAAP) was not in accordance. A qualified opinion can be added if a specific area wasn’t included in the financial statement when needed. Finally, the management reports are conducted by the management team and not the auditors. The management report is the annual report the topics included in the report are the internal control system and the responsibility of the audit committee.
1. To have a strong internal control system, a business must have good administrative controls. Administrative controls include: A. B. C. D. the reconciliation of the bank statement. the accuracy of the recording procedures. assessing compliance with company policies. maintenance of accurate inventory records.
Internal control has different control principles, establishing responsibility focuses on allotting different tasks to a concerned person, like each sales person should have an individual sales register. Different controls on physical, mechanical and electronic should be exercised as this will help in reducing the unauthorized use of different resources, this is essential for safeguarding assets and
● Monitoring — Internal control systems need to be monitored–a process that assesses the quality of the system’s performance over time. This is accomplished through ongoing monitoring activities, separate evaluations or a combination of the two. Ongoing monitoring occurs in the course of operations. It includes regular management and supervisory activities, and other actions personnel take in performing their duties. The scope and frequency of separate evaluations will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures. Internal control deficiencies should be reported upstream, with serious matters reported to top management and the board.
(i) Management is responsible for organising the resources of the company to achieve organisational objectives.
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Auditors should always evaluate the design and test the operating effectiveness of a company’s internal control. The key procedures of the evaluation of design are fulfilled by inquires, observations, and inspections. The same procedures can be used to test the operating effectiveness as well.
There are five components that are used to break down internal control. The first is control environment which is at the top such as the managers and CEO’s of companies
There are several procedures that should be considered when implementing internal controls for your business. There should be a segregation of duties between different individuals to lessen the threat of
Management in my mind and as the book reinforces the definition to be, to plan, to organize, to staff for the process, and to control the process to the end. These are consider the primary functions of the management role (p.8).
Does the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control?
The framework describes internal control as a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effective internal controls protect a company’s assets, maintain compliance, improve operations, prevent fraud, and promote accuracy in financial reporting. In 1992 the
The internal auditor have a several roles in the company which is the first one the audit committee need to discharge and restrict the governance responsibilities and the
The role of internal audit is to provide independent declaration that an organization’s threatadministration, governance and internal control processes are functioning effectively. Internal auditors deal with concerns that are essentially important to the existence and success of any organization. Unlike external auditors, they aspect beyond financial possibilities and statements to reflect wider problems such as the organization’s reputation, development, its power on the location and the approach it treats its organizations.In summary, internal accountantssupport organizations to thrive.