Chapter 3 Flashcards
Reasons for ICs
Minimise business risks
Ensure continuing effectiveness of company
Ensure compliance with relevant laws and regulations
Limitations of ICs small companies
Small companies struggle implementing effective ICs because :
Fewer employees to review work of others
Fewer staff - single person in charge of many things (lack of seg)
Less experience and technical knowledge
Limitations of ICs
Expense of control
Human element
Collusion
Unusual transactions
Components of internal controls
CRIME
Control activities
Risk management processes of entity
Information systems
Monitoring of controls
Control environment (attitude at top).
Types if controls
Segregation of duties
Physical controls
Information processing (recalc of discounts / receivables ledger reconciliation)
Review of performance (actual v budget)
Authorisation
Impact of business risk on audit
Stronger ICs in place - auditors likely to use TOCs
Risk assessment weak= ineffective control system
Business risk may link to IH risk giving rise to error in FS
Auditors often produce mgmt reports for smaller entities without an internal audit function- outlining system/control weaknesses
Information system
Manual and computer generated processes
Auditors interested in:
Recording and reporting procedures
Records and supporting documents
Process of financial statement preparation
Capturing significant events
General IT controls v application controls
General it - support functioning of application co
