Focus on: Understanding Internal Control and Assessing Control Risk—Module 3
CONSIDERATION OF INTERNAL CONTROL
Consideration of internal control is necessary to determine nature, timing, and extent of substantive tests
Internal control is defined as a process—effected 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:
Related to the above is the safeguarding of assets.
Components of Internal Control
Internal control consists of five interrelated components
- Control Activities
- Risk Assessment
- Information and Communication
- Monitoring
- Control Environment
Control Activities
Control activities are policies and procedures that help ensure that management directives are followed
The auditor will be concerned about
- Performance reviews—comparisons of actual performance to expectations
- Information processing—checks on accuracy, completeness, and authorization of transactions
- Physical controls—safeguarding assets and controlling access to records
- Segregation of duties—reducing opportunities for one individual to commit errors and conceal them
I say! These control activities are pips
Duties requiring segregation are
- Authorization
- Recording
- Custody
ARC
Risk Assessment
Risk assessment addresses how the company identifies, ...
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