chapter 3 Internal Control

Question 1

IC component - Control Environment

Answer 1

• Demonstrates commitment to integrity and ethical values
• Exercises oversight resp.
• establishes structure, authority and responsibility
• commitment to competence
• enforces accountability
• CHOPPER
  
  • Commitment to competence
  • Human resource policies and practices
  • organizational structure
  • participation of those charged with governance
  • philosophy of management and mgt operating style
  • ethical values and integrity
  • resp assignment

Question 2

IC component - RIsk Assessment

Answer 2

• specifies suitable objectives
• identifies and analyzes fraud
• assesses fraud risk
• identifies and analyzes significant change
• external/internal factors:
  
  • changes in operating environment
  • new personnel
  • new or revamped info sys
  • rapid growth
  • new tech
  • foreign operations
  • accounting pronouncements

Question 3

IC component - Control Activities

Answer 3

• selects and develops control activities
• selects and develops general controls over technology
• deploys through policies and procedures (PIPS)
  
  • Performance reviews - actual vs budget. P/Y, financial to non financial
  • Information processing - (IT) general vs application controls
  • Physical controls - access to assets
  • Segregation of duties (ARCC-S)
    
    • Authorization of transactions
    • Recording (posting) of transactions
    • Custody of assets
    • Comparisons

Question 4

components of IC - info. and communication

Answer 4

• uses relevant info
• communicates externally
• communicates internally

Question 5

comp. of IC - Monitoring

Answer 5

• conducts ongoing and/or separate evaluations
• evaluates and communicates deficiencies

Question 6

Documentation of IC Structure

Answer 6

• a well designed questionnaire will include questions related to each of the different types of control activities (PRAISE)
  
  • Physical controls - is proper security maintained over valuable department assets? Are there adequate safeguards over unused documents?
  • Recording - Are transactions documented as to all relevant terms and descriptions? Are documents renumbered and periodically accounted for?
  • Authorization - Are transactions authorized by personnel at least one level above the request level? Are the third parties involved in transactions approved in advance?
  • Independent checks - Are documents compared to verify their agreement before transactions are executed? Are records periodically reconciled to related documents?
  • Segregation of duties
  • Evaluate performance - Are there written department policies and procedures? Are unusual or uncompleted transactions periodically investigated?