#10 Understanding an entity’s controls

Question 1

COSO control environment principles

Answer 1

Management and those charged with governance should:
1.Commit to integrity and ethical values
2.Exercise their oversight responsibilities
3.Establish structure, authority, and responsibility
4. Commit to competence
5.Enforce accountability

!!Greater management oversight is needed when organization is small size that prevents segregation of incompatible duties.

Question 2

Examples of inventory valuation controls

Answer 2

*Review of inventory data input
*Regular review for slow-moving, damaged, or obsolete items
*Regular review of net realizable inventory value
*Internal controls that include regular physical inventory counts (used to adjust perpetual records) provide a means of maintaining accurate inventory records.

Question 3

COSO internal Control-Integrated Framework

Answer 3

*The framework:
The monitoring-for-change continuum core comprises of 4 steps
1-establish baseline
2-monitor/evaluate baseline
3-manage change
4-update as necessary

-One of the primary purpose of internal control is to help an entity in preserving acceptable level of risk.
-Framework composed of 5 components, monitoring being one them.

Question 4

Segregation of duties: ARCC
Internal Controls

Answer 4

The following should be performed by a different person.

(A)uthorization
(R)ecordkeeping
(C)ustody
(C)omparison/reconciliation