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Internal Control

Internal Control. A process ...designed to provide reasonable assurance...regarding, achievement of (the entity’s) objectives on: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations.

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Internal Control

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  1. Internal Control

  2. A process...designed to provide reasonable assurance...regarding, achievement of (the entity’s) objectives on: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations Summary of Internal Control Definition

  3. The Control Environment Risk Assessment The Accounting Information and Communication System Control Activities Monitoring Components of Internal Control

  4. Integrity and ethical values Commitment to competence Board of directors or audit committee Management philosophy and operating style Organizational structure Human resource policies and practices Assignment of authority and responsibility Control Environment Factors

  5. Changes in the regulatory or operating environment Changes in personnel Implementation of a new or modified information system Rapid growth of the organization Changes in technology affecting production processes or information systems Introduction of new lines of business, products, or processes Risk Assessment--Factors Indicative of Increased Financial Reporting Risk

  6. Identify and record valid transactions Describe on a timely basis the transactions in sufficient detail to permit proper classification of transactions Measure the value of transactions appropriately Determine the time period in which the transactions occurred to permit recording in the proper period Present properly the transactions and related disclosures in the financial statements Objectives of an Accounting System

  7. Performance reviews Information processing Physical controls Segregation of duties Control Activities

  8. Ongoing monitoring activities Separate evaluations Monitoring

  9. Errors may arise from misunderstandings of instructions, mistakes of judgment, fatigue, etc. Controls that depend on the segregation of duties may be circumvented by collusion Management may override the structure Compliance may deteriorate over time Limitations of Internal Control

  10. Obtain an understanding Document the understanding Determine planned assessed level of control risk Design additional tests of control Reassess control risk If necessary, modify planned substantive tests The Auditors’ Consideration of Internal Control

  11. Questionnaires Written Narratives Flowcharts Documenting Internal Control

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