16. Audit And Control Flashcards
What is internal control ?
Process designed to make business reliable with financial reporting, efficient and comply with regulations.
What is internal check ?
Element of internal control; no task is performed from start to finish by 1 person
What is purpose of internal control ?
Order in business
Safeguard assets
Prevent fraud/error
Accuracy n completeness of records
Timely preparation of statements
What are components of IC ? (5)
Control environment (foundation)
Risk assessment process (how business identify and responds to risk)
Information system(for reporting, must describe, measure and present transaction properly)
Control activities
Monitoring of control (to assess quality of control)
What is the use of IT in control?
Operational control (daytoday activities)
Financial control (check fin data)
How IT system are protected ?
Through:
General control (physical, hard/soft config, logical access, recovery, output control and support)
Application control (automated so data input is accurate) - completeness, authorisation, identification, validity
How board should assess IC ?
Annually, considering risks and control failings
Define internal/external audit
Internal - measures business IC, scope of work is defined by mngmnt, no legal requirement, report to directors
External - measures if input for financial statements are true and fair. Legal req for some, highly regulated. Report to shareholders.
Purpose of internal audit (3)
Part of business control
Help understand strength and weaknesses
Help evaluate risk mngmt solutions
Purpose of external audit (3)
Makes fin statements more reliable
Gives opinion if statements are true and fair
May encourage employees, suggest improvements
IC and audit relations
Internal - fundamental to assure corp gov requirements are met. Auditor can check if IC guards against risks.
External - if IC is proper auditor can rely more on it (less risk)
Substantive test
Test for accuracy, to establish facts
What are 3 types of control ?
Preventive
Detective
Corrective
What are control activities ?
Authorisation
Comparison
Comp control
Arithmetic control
Maintain tb
Reconciliation
Physical controls
Segregation of duties (splitting task to prevent fraud)
