B1-M1 Internal Control Frameworks

Question 1

what is the purpose of internal control integrated framework (developed in 1992)?

Answer 1

to assist organizations assess internal control

Question 2

who is responsible for evaluating internal control procedures in a large public company?

Answer 2

independent internal audit function that reports to the governing body of the company. Ex: internal audit staff who report to the board of directors

Question 3

what relationship is best describes the nature of board of directors to a company?

Answer 3

FIDUCIARY: act on behalf of and in best interest of the corporation

Question 4

what are the 3 elements of the fraud triangle?

Answer 4

1. pressure/motivation: both internal and external, creates the incentive to commit fraud
2. opportunity: from poor internal controls, lack of duty segregation, and a weak control environment
3. rationalization: represents the justification of actions by fraud perpetrators

Question 5

what are the 3 objectives, 5 components, and 17 principles of COSO?

Answer 5

• 3 objectives: ORC
  1. Operating
  2. Reporting
  3. Compliance
• 5 components: CRIME
  1. Control Environment: tone at the top - ethics
  2. Risk Assessment: FS misstated, not efficient, breaking laws
  3. Information & Communication: fair, accurate, complete, and timely FACT
  4. Monitoring: effectiveness of controls & report deficiencies
  5. Existing Control Activities: policies/procedures to mitigate risks
• 17 principles: EBOCA SAFR OIE SOD CATP

1. Control environment: EBOCA
   + Commitment to Ethics and Integrity
   + Board Independence and Oversight
   + Organization structure
   + Commitment to Competence
   + Accountability
2. Risk Assessment: SAFR
   + Specify objectives
   + Identify and Analyze Risks
   + Consider potential Fraud
   + Identify and Assess changes
3. Information and Communication: OIE
   + Obtain and use information
   + Internally communicate information
   + Communicate with External parties
4. Monitoring Activities: SOD
   + Ongoing and/or Separate evaluation
   + Communication of Deficiencies
5. Existing control activities: CATP
   + select and develop Control Activities
   + select and develop Technology controls
   + deployment of Policies and Procedures

Question 6

what are the 3 objectives of coso?

Answer 6

3 objectives: ORC
1. Operating: effectiveness and efficiency of entity’s operations and ensure that the assets of the organization are adequately safeguarded

2. Reporting: focus of coso. It pertain the reliability, timeliness, and transparency of the entity’s external and internal financial and nonfinancial reporting established by regulators
3. Compliance: ensure the entity is adhering to all applicable laws and regulations

Question 7

what are the triangle of fraud?

Answer 7

1. incentive/pressure
2. opportunity
3. Attitude/rationalization

Question 8

what are limitations of internal control?

Answer 8

1. breakdowns in IC due to errors or human failure
2. issues relating to suitability of entity’s objectives
3. external events beyond control of entity
4. collusion/circumvention
5. management override