Internal Control Consideration

Question 1

Internal Control

Answer 1

Process designed, implemented, and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to
a. reliability of finacial reporting
b. Effectiveness and efficiency of operations
c. Compliance with applicable laws and regulations

Question 2

Characteristics of Internal Control

Answer 2

1. It is a process
2. It is effected by entity’s personnel
3. It provides reasonable assurance of achieving its objectives
4. Geared toward attainment of entity’s objectives

Question 3

Inherent limitations that may affect effectiveness of internal controls (COC CHA)

Answer 3

1. Cost-benefit consideration
2. Management overriding the controls
3. Collusion with parties outside the entity
4. Changes in conditions
5. Human error
6. Controls tend to be directed at anticipated types (routine) of transactions instead of non-routine transaction

Question 4

Controls

Answer 4

Policies or procedures that an entity establishes to achieve the control objectives of management or those charged with governance.

Question 5

Areas of Internal Control

Answer 5

1. Administrative Control-promotes operational efficiency and adherence to managerial policies
2. Accounting Control- plan of organization and the procedures and records that are concerned with the safeguarding of assets and the reliability of financial records

Question 6

Accounting System

Answer 6

Series of tasks and records of an entity by which transactions are processed as a means of maintaining financial records

Question 7

Internal Control System

Answer 7

All the policies and procedures adopted by management of an entity to assist in achieving management objectives

Question 8

Parties Responsible for Internal Control

Answer 8

1. Management and those Charged with Governance- have responsibility of making sure the internal control is adequate
2. Internal Auditors- ensuring the adequacy of the internal control and efficient use of resources
3. External Auditor- assess the effectiveness of internal control within an organization to plan the audit

Question 9

Component of Internal Control (CRIME)

Answer 9

1. Control Activities
2. Entity’s Risk Assessment Procedure
3. Information and Communication System
4. Monitoring of Controls
5. Control Environment

Question 10

Direct vs Indirect Controls

Answer 10

Direct- controls that are precise enough to address the risk of material misstatements.
(Information and Communication Systems and Control Activities)

Indirect- Controls that are not sufficiently precise to prevent, detect, or correct misstatements at the assertion level
(Control Environment, Entity’s Risk Assessment Procedures, and Monitoring of Controls)

Question 11

Control Environment

Answer 11

Set of standards, processes and structures that provide a basis for carrying out of internal control. Also the foundation on which an effective system of internal control is built and operated in an organization

Question 12

Elements of Control Environment (OLD)

Answer 12

1. Communication and Enforcement of the Integrity and Ethical Values
2. Management Philosophy and operating style
3. Commitment to competence
4. Participation of those charged with governance
5. Assignment of Authority and responsibility
   6.Human Resources policies and procedures
6. Organizational Structure

Question 13

Elements of Control Environment (NEW)

Answer 13

1. Management’s commitment to integrity and Ethical Values
2. TCWG’s independence from management and exercise oversight of the entity’s system of internal control
3. Entity’s Assignment of Authority and Responsibility and pursuit of its objectives
4. Attraction and Development of Competent individuals
5. Individuals are held Accountable for their responsibilities

Question 14

What are the Entity’s Risk Assessment Procedures

Answer 14

1. Identifying business risk relevant financial reporting objectives
2. Assessing the significance of risk and likelihood of occurrence
3. Decide how to manage those risks

Question 15

Monitoring of Controls

Answer 15

Process of assessing the quality of internal control performance over time which includes assessing the design and operations of controls on a timely basis and takin necessary corrective actions

Question 16

Direct vs Indirect Controls

Answer 16

Direct Controls- controls that are precise enough to address the risk of material misstatement at the assertion level
Indirect Controls- Controls that are not sufficiently precise to prevent, detect or correct misstatements at the assertion level

Question 17

Components of Information System

Answer 17

1. Infrastructure
2. Software
3. People
4. Input or data
5. Output or meaningful information

Question 18

Control Activities

Answer 18

Actions that help management mitigate risks in order to ensure the achievement of objectives.

Question 19

Examples of Control Activities (OLD)(APIPS)

Answer 19

1. Authorization
2. Performance Review
3. Information processing
4. Physical controls
5. Segregation of Duties

Question 20

Examples of Control Activities (NEW) (PARVS)

Answer 20

1. Authorization and Approvals
2. Reconciliation
3. Verifications
4. Physical or Logical Controls
5. Segregation of Duties