Chapter 5: Introduction to internal control and information flows Flashcards
What is a system of internal control?
- A system designed, implemented
and maintained by TCWG - Provide reasonable assurance: reliability of financial reporting, effectiveness of operations, compliance with laws
What are some limitations of internal controls?
human element, collusion, unusual transactions
Why small companies may have particular problem in implementing effective IC system than larger companies?
Because they employ fewer employees. The larger the number of people in the system, the more uncovered problems will be resolved
How many components does the internal control system comprise?
- control environment
- entity’s risk assessment process
- entity’s process to monitor the system of internal control
- information system and communication
- control activities
_________: to prevent an error occurring
_________: to identify that an error has occurred and correct it
preventative control/ detective control
What does a control environment include?
- governance & mgt function
- attitudes, awareness, and actions of TCWG and mgt concerning the entity IC
=> set the tone of an org
The audit committee is an important aspect of the company’s control environment. True or False?
True
Does UK listed companies are required to have audit committee?
Yes
What is the audit committee comprised of?
non-executive directors
What is the role of the audit committee?
- supervise the identification of risks
- monitor controls
- review the integrity of FSs
What is an entity’s assessment process?
The process of identifying and analysing risks to achieve entity’s objectives and how mgt manages the risks
Examples of business risks
eg: changes in the operating environment, new technology, rapid growth,…
What is the difference between business risk and inherent risk?
Business risk relates to the financial statements and affects overall audit risk; inherent risk applies to an individual audit area.
The role of monitoring of controls is undertaken by whom?
Internal auditors
What document do the auditors produce to outline any weakness they have observed in IC?
a management report