Internal Control Concepts and Techniques

Internal Control Concepts and Techniques

Topic 3

Objectives

• describe the role of internal control in the organization.

• describe the assumptions pertaining to internal controls

• describe preventive- detective-corrective internal control model

• describe the components of COSO internal control framework

Open Ended

List down all the possible fraud schemes or fraudulent act that might happen in an organization.

Open Ended

Considering what you have listed down in the previous question, what do you think will be the impact of these fraudulent act?

Open Ended

What do you think is the reason why these acts might happen in an organization?

Internal Control

comprises policies, practices, and procedures employed by the organization to achieve four broad objectives:

👉 To safeguard assets of the firm.

👉 To ensure the accuracy and reliability of accounting records and information.

👉 To promote efficiency in the firm’s operations.

👉 To measure compliance with management’s prescribed policies and procedures

Modifying Assumptions

• Management's Responsibility

• Reasonable Assurance - "Cost Constraints"

• Methods of Data Processing

• Limitations - "P. C. M. C"

Exposures and Risks

PDC Model of Internal Control

Preventive - Detective - Corrective

Open Ended

Give an example of a preventive control over financial reporting.

Open Ended

Give an example of a detective control over financial reporting.

Open Ended

Give an example of a corrective control over financial reporting.

COSO Internal Control Framework

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

1. Control Environment

The control environment sets the tone for the organization and influences the control awareness of its management and employees

2. Risk Assessment

• Organizations must perform a risk assessment to identify, analyze, and manage risks relevant to financial reporting.

3. Control Activities

• the policies and procedures used to ensure that appropriate actions are taken to deal with the organization’s identified risks.

• IT Controls and Physical Controls

IT Controls

• General Controls- entity-wide concerns such as controls over the data center, organization databases, systems development, and program maintenance.

• Application Controls - ensure the integrity of specific systems such as sales order processing, accounts payable, and payroll applications.

Physical Controls

• Transaction Authorization

• Segregation of Duties

• Supervision - Compensating Control

• Accounting Records

• Access Controls - Direct or Indirect

• Independent Verification

4. Information and Communication

• The quality of information the accounting information system generates impacts management’s ability to take actions and make decisions in connection with the organization’s operations and to prepare reliable financial statements

5. Monitoring Activities

• the process by which the quality of internal control design and operation can be assessed.

Multiple Select

Check all the applicable components of COSO internal control framework

• Monitoring

• Control Environment

• Control Activities

• Information and Communication

• Risk Assessment

Multiple Select

Which of the following choices belong to a physical controls? (Check all that apply)

• Transaction Authorization

• Application Control

• General Control

• Segregation of Duties

• Supervision

Multiple Choice

Which of the following relates to the broad objectives of internal control?

• promotes operational efficiency

• accuracy and reliability of financial reporting

• safeguarding of assets

• compliance to policies and procedures

• All of the choices given

Multiple Choice

Ensuring that all material transactions processed by the information system are valid and in accordance with management’s objectives is an example of

• Transaction Authorization

• Independent Verification

• Segregation of Duties

• Supervision

• Accounting Records

Multiple Choice

Providing timely information about transactions in sufficient detail to permit proper classification and financial reporting is an example of

• Monitoring

• Control Activities

• Risk Assessment

• Information and Communication

• Control Environment

Poll

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