Chapter 6 - Internal Control Flashcards

1
Q

What is the definition of internal control systems?

A

System for management to control certain risks and therefore help businesses achieve their objectives

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2
Q

What is the board of directors responsible for?

A

Company’s system of internal control

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3
Q

What are all employees responsible for?

A

They have some responsibility for internal control as part of their accountability for acheiving objectives

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4
Q

What is the turnbull report?

A

Published in 1999, and set out best practice regarding internal controls for listed companies in the UK.

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5
Q

What does the risk management and internal control systems ecompass?

A

Policies, culture, organisation, behaviours, processes, systems and other aspects of a company that, taken together:
Facilitate its effective and efficient operation by enabling it to assess current and emerging risks
Reduce the likelihood and impact of poor judgement in decision making
Help ensure quality of internal and external reporting
Help ensure compliance with applicable laws and regulations

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6
Q

What does a company’s system of risk management and internal control include?

A

Risk assessment
Management or mitigation of risks including:
Use of control processes
Information and communication systems
Processes for monitoring and reviewing their continuing effectiveness

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7
Q

What does COSO stand for?

A

Committee of Sponsoring Organisation

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8
Q

What are the five integrated elements of the COSO?

A

Control environment
Risk assessment
Control activities
Information and communication
Monitoring

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9
Q

What can the control environment be thought as?

A

Management’s attitude, actions and awareness of the need for internal controls

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10
Q

What should the risk assessment consider?

A

Internal and external factors and distinguish between controllable and uncontrollable risks

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11
Q

What are some examples of control?

A

Segregation of duties
Physical controls
Authorisation and approval
Management control
Supervision
Organisational structure
Arithmetic and accounting
Personnel Controls

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12
Q

What are financial controls?

A

Controls express financial targets and spending limits

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13
Q

What are non-financial quantitative controls?

A

Controls focus on targets against which performance can be measured and monitored

Examples include balances scorecard targets and TQM quality measures

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14
Q

What are non-financial qualitative controls?

A

Day to day controls over most employees in organisations

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15
Q

What is fraud?

A

Dishonesty obtaining an advantage, avoiding an obligation or causing a loss to another party

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16
Q

What are some prerequisites for fraud?

A

Ability to rationalise the fraudulent action and hence act with dishonesty
Perceived opportunity to commit fraud
Motive, incentive or pressure to commit fraud

17
Q

What is the three parts to fraud risk management strategy?

A

Fraud prevention
Fraud detection
Fraud response

18
Q

What are some examples of fraud prevention?

A

Anti-fraud culture
Risk awareness
Whistleblowing
Sound internal control systems

19
Q

How do we detect fraud?

A

Performing regular checks
Warning signals/fraud risk indicators:
Failures in internal control procedures
Lack of information provided to auditors
Unusual behaviour by individual staff members
Accounting difficulties

20
Q

What is included in the response plan?

A

Internal disciplinary action
Civil litigation
Criminal prosecution
Responsibilities