1 / 37

Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition. William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University. Chapter 10 – Understanding Internal Control. Chapter 10 Overview.

beulah
Download Presentation

Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8 th Edition

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. Modern Auditing: Assurance Services and the Integrity of Financial Reporting, 8th Edition William C. Boynton California Polytechnic State University at San Luis Obispo Raymond N. Johnson Portland State University Chapter 10 – Understanding Internal Control

  2. Chapter 10 Overview

  3. Fundamental Concepts of Internal Controls • Process integrated with an entity’s infrastructure • People implement internal control • Can only provide reasonable assurance • Achieve objectives in financial reporting, compliance, and operations

  4. Components of Internal Control • Control Environment • Risk Assessment • Control Activities • Information and Communication • Monitoring

  5. Entity Objectives with Internal Control • Reliability of financial information • Compliance with applicable laws and regulations • Effectiveness and efficiency of operations

  6. Limitations of Internal Control • Mistakes in Judgment • Breakdowns • Collusion • Management Override • Cost versus Benefits

  7. Roles and Responsibilities • Management • Board of Directors and Audit Committee • Internal Auditors

  8. Roles and Responsibilities (cont.) • Other Entity Personnel • Independent Auditors • Other External Parties

  9. Study Break • _____ is a process that assesses the quality of internal control performance over time. • Control activities • Risk assessment • Information and communication • Monitoring D. Monitoring

  10. Study Break 2. This limitation of an entity’s internal controls occurs when two or more individuals act together to perpetrate and conceal fraud. • Breakdowns • Collusion • Management override • Mistakes in judgment B. Collusion

  11. Components of Internal Control

  12. Control Environment • Integrity and Ethical Values • Commitment to Competence • Board of Directors and Audit Committee • Management’s Philosophy and Operating Style

  13. Control Environment (cont.) • Organizational Structure • Assignment of Authority and Responsibility • Human Resource Policies and Practices

  14. Risk Assessment Process

  15. Information and Communication • Information • Transactions • Audit Trail or Transaction Trail • Documents • Records • Communication

  16. Control Activities • Authorization Controls • Segregation of Duties • Transaction authorization • Custody of assets • Recorded accountability in accounting records

  17. Segregation of Duties

  18. Control Activities (cont.) • Information Processing Controls • General Controls • Computer Application Controls • Controls over the Financial Reporting Process

  19. General Controls • Organization and Operation Controls • Systems Development and Documentation Controls • Hardware and Systems Software Controls • Access Controls • Data and Procedural Controls

  20. Computer Application Controls • Input Controls • Processing Controls • Output Controls

  21. Controls over the Financial Reporting Process

  22. Control Activities (cont.) • Physical Controls • Performance Reviews • Controls over Management Discretion in Financial Reporting

  23. Control Activities (cont.) • Monitoring • Ongoing monitoring programs • Separate evaluations • Element of reporting deficiencies to the audit committee

  24. Antifraud Programs and Controls

  25. Study Break 3. Which of the following does not influence the control environment? • Management’s Philosophy • Adequate Training • Hiring Processes • All of the above influence the control environment D. All of the above influence the control environment

  26. Study Break 4. This component of control activities ensures that every transaction is authorized by management acting within the scope of their authority. • Authorization Controls • Segregation of Duties • Information Processing Controls • All of the above A. Authorization Controls

  27. Study Break 5. This computer application control is designed to ensure that the processing results are correct and only authorized personnel receive the information. • Input Controls • Processing Controls • Output Controls • Data Controls C. Output Controls

  28. Understanding Internal Control Must perform procedures to: • Understand design of policies and procedures • Determine whether the policies and procedures are operating

  29. Understanding Internal Control Auditor uses the understanding to: • Identify types of potential misstatements • Understand factors affecting risk of material misstatement • Design further audit procedures

  30. Effects of Preliminary Audit Strategies • Control Environment • Risk Assessment • Information and Communication • Control Activities • Monitoring

  31. Procedures to Obtain an Understanding • Review previous experience with the client • Inquire management, supervisory, and staff personnel • Inspect documents and records • Observe activities and operations • Trace transactions through system

  32. Documenting the Understanding • Questionnaires • Flowcharts • Decision Tables • Narrative Memoranda

  33. Questionnaire

  34. Decision Table

  35. Narrative Memoranda

  36. Study Break 6. All of the following are procedures used to obtain an understanding of internal controls except: • Inspecting documents • Inquiries of client’s customers • Inquiries of management • All of the above procedures are used B. Inquiries of client’s customers

  37. Study Break 7. This form of documentation is a diagram that uses symbols to identify the steps involved in processing information through the accounting system. • Questionnaire • Flowchart • Decision Table • Narrative Memoranda B. Flowchart

More Related