Internal Control Flashcards
What are the 3 objectives of internal control?
- reliability of financial reporting
- effectiveness and efficiency of operations
- compliance with laws and regulations
Inherent Limitations of IC (COCCHA)
- Cost-benefit consideration
- Override of management
- Collusion
- Changes in condition → inadequacy of internal control
- Human error
- Anticipated transactions (not unusual ones)
Components of Internal Control (CRIME)
Among CRIME, what are direct (transaction-specific) components?
- Control activities
- Risk assessment process
- Information system and communication
- Monitoring activities
- Control Environment
NOTE : Control Activities & ISC → direct (transaction-specific)
Incompatible Duties (CAR)
- Custody
- Authorization
- Recording
Internal Control
1. Understanding
2. Test of Controls
For each number, what is the objective?
- Understanding - design and implementation
- TOC - effectiveness
Understanding Internal Control
- same procedures as RAP (IOI analytical)
- goal → preliminary assessment of CR
- either go to TOC → ST or straight to ST
Yes
Design of IC must be documented.
To test design, an auditor can inquire or observe. True or False?
FALSE - inquire or inspect (maoobserve mo ba yung design)
- Implementation → inquire or observe
What are the procedures in TOC?
IOI Reperformance
- goal is final assessment of CR
NOTE : If ↓ CR, basis of conclusion → must be documented (since nagrely ka sa IC, idocument mo ano naging basis mo for your reliance)
An auditor notices a weakness in the IC of the client. He must recommend solutions to improve this weakness. True or False?
Weakness = must be communicated to TCWG (✗ recommend)
- recommendation is only a secondary purpose
Which is more severe?
Material Weakness or Significant Deficiency?
Material Weakness
Material nga e
