Internal Control Flashcards
Internal Controls
consists of all methods and measures to safeguard its assets, enhance reliability of accounting info, increase efficiency of operations and ensure compliance with compliance with laws
Control Environment
Top management must make it clear that the organization values integrity and does not allow unethical behaviours
Risk Assessment
Companies must analyze various factors that create risks and determine how to manage the risks
Control Activities
to reduce occurence of fraud, management must design policies and procedures to address specific risks
Information and Communication
must capture and communicate all pertinent information both up and down the organization and to external parties
Monitoring
Internal Control systems must be monitored periodically for their adequacy
Establishment of Responsibility
Internal Control assigning only one person for given tasks. Helps to identify source of discrepancies
Segregation of Duties
Work is divided up so no one person has complete control over all aspects
Document Procedures
Evidence of transactions and events. Documents should be prenumbered to prevent omission
Physical Mechanical & Electronic Controls
important to safeguard assets, mechanical controls improve accuracy and reliability (cash registers,cheque writer) , electronic controls are used to safeguard and enhance reliability.
Independent Internal Verification
Periodical or on surprise basis an independent individual reviews work done by an employee
Other Controls (Human Resource)
Employees taking vacations, rmployee rotation, background checks
Auditing
Falls under “monitoring” & “risk assessment” . Three types : Internal Auditor , External Auditor, Operational Auditor
Limitations of Internal Controls
- Implementation costs exceeds expected benefits
- Collusion
- Business Size
- Human element (employee fatigue,carelessness)
