B1 Flashcards
The treadway commission was established by
Private Sponsoring Organizations
COSO prepared
the Internal Control Integrated Framework to help businesses assess internal controls.
A public corporation, evaluating internal control procedures is done by
internal audit staff who reports to the board of directors which are responsible for the internal controls of company
According the COSO, the proper tone at the top helps a company
promote a willingness to seek assistance, navigate gray areas, create a compliance supporting culture
Conduct that will communicate the “tone at the top” includes
limits on situations that can cause conflict of interest ( what is this) / gifts and descriptions of their commitment to keeping information confidential
Board of Directors is
Fiduciary which is acting on the behalf of or best interest of another
The Board of Directors exercises
oversight responsibility to financial reporting and related internal control
Control Environment represents
A company has established and communicated baseline expectations ( example code of conduct) for performance to all employees
Risk Assessment includes
principles such as specifying objectives of risk and financial reporting, asses changes to leaders, Fraud, Risks analyzed
According to COSO, the first step in evaluating the effectiveness of an internal control system is to
establish a Control Baseline
The compliance program that included both Ethics training and hotline for anonymous reporting is evidence of
development of ethical values and the values are understood: Control Environment
Periodic acknowledgement is
the development of ethical values and that ethical values are understood
Define Control Environment
the baseline set by management expectations for employees.
Monitoring internal controls is to
make sure control effectively manages Risks.
Establishing a control baseline is
the first ongoing monitoring step in evaluating the effectiveness of an internal control.
Internal audit manager requests information of training that IT department received showing a
commitment to retain competent individuals which is part of Control Environment
The financial reporting principle suggests
stronger controls and encourages the company to retain qualified personnel.
The definition of Obtain and use information
obtains relevant, high quality information to support a control
Ongoing monitoring activities are
comparison of information, periodic analysis, follow up customer and vendor complaints. (Monitoring COSO)
Monitoring internal control involves
establishing a foundation, designing and executing procedures, assessing and reporting the results & following up corrective action
Monitoring is
assessing the design and operation of controls in a timely manner & taking corrective actions
The fraud triangle is
incentive to commit fraud from motivation and pressure, opportunity stems from weak internal controls, rationalization is justification of actions by fraud perpetrator.
Prioritizing findings is
included in the assess and report phase of an effective approach to monitoring
Committee on Sponsoring Organizations (COSO) are associated with
Institute of Auditors (IIA), Institute of Management Accountants (IMA), American Institute of Certified Public Accountants (AICPA)
The COSO cube is used to illustrate categories of objectives
(Operating, Reporting, Compliance), internal control components, and entity organizational levels.
Controls Provide:
Controls only provide “inherent limitations”. Setting up internal controls does not provide “assurance” (confidence or certainty) that controls will not be overridden.
In order to have effective internal controls
components operate together, the components and associated principles are present and functioning as designed.
Information and communication ensure
the internal and external auditors are aware of significant internal control issues
What are principals of existing control activities
Policies/ Procedure and Technology
Strategy and Objective setting component of
Enterprise Risk Management framework is supported by the principle of analyzing business Objective setting in GO PRO (Strategies, Objectives, Analyzes business context, Risk Appetite)
Regular evaluation of employees for their competence in financial reporting is a link between
human resources policy and financial reporting objectives.
Attracting and retaining capable employees is a principle that
supports the governance and culture in Enterprise Management
Governance and culture components is
is supported by the principles of oversight of board, commitment to values, desired culture
Enterprise Risk Management states
that event identification occurs after the development of objectives. (Events will either favorably or unfavorably impact the achievement of objectives)
Enterprise Risk Management helps improves
risk response decisions, Improving division of capital, seizing good opportunities for companies
Organizational sustainability is
the ability to withstand the impact of large scale events
The core values of an entity most closely correlate with
culture
What makes up Enterprise Risk Management framework
Objectives are reached, achieve financial and Performance targets, assess Risks continuously
Risk appetite is
likelihood of fraud occurring significantly exceed residual risks.
Information must be provided in a
timely manner, relevant to the appropriate user, readily accessible to those who need it. (Information and communication component) (OIE)
Risk assessment use
Objective statistical data with estimated probabilities, subjective assumptions which accounts impact all of these assessment
Enters into a contract with conflict of interest
contract is voidable unless the director makes the full disclosure to the disinterested directors/ shareholders who then can approve it before hand
Control Environment is
code of conduct that encouraging teamwork in pursuit for entity’s objectives
Sarbanes- Oxley Act requires that
members of the audit committee be a financial expert and that the financial reports disclose the existence of financial experts does not require CPA
Qualifications to be financial expert is
a judgment issue made by the Board of Directors and Sarbnes- Oxley provides guidance
SEC proposed standards for codes of ethics to include
both internal reporting & accountability
Sarbanes-Oxley States
issuer must disclose whether or not it has adopted a code of ethics for the issuers senior financial officers but not for other employees
A code of conduct should be
in writing and available to employees but does not need to be displayed in public.
Title IV of sarbanes- oxley disclosures found in
an issuers financial statements include usage of special purpose entities, relationships with subs that are not consolidated, GAAP basis financials
SEC place the lowest priority on
reviewing common stock because they have the lowest value
Picking Ticket is a
list of items on an order, authorizes the warehouse to send goods to the shipping department
Three-way match of expenditure process is
purchase order, receiving report, supplier invoice.
Packing Slip list of items included in package, is a
common document found in the revenue process
Voucher is paper that
entitles the holder to a discount, a common document found in the expenditure process
Product design and engineering and Manufacturing forecasting scheduling, are part of
manufacturing process
Earnings Statement is a
common document found in the human resources and payroll process
Bill of Materials list
of raw materials owned by company is found in the manufacturing process
Detective control are designed to
find errors that has already occurred (EX: Reconciliation of changes)
