Internal Control Flashcards
Payroll
Recording department that performs the calculation of payroll amounts. Prepare vouchers for amount of the payment.
Personnel
Authorization department responsible for hiring of new employees, approval of pay rates, and termination.
Treasurer
Custody department that is responsible for the signing and distribution of paychecks to employees, unclaimed paychecks should be retained within the same department until distributed or voided.
Controller
For purposes of payroll, the controller is responsible for the bank reconciliation. (Comparison)
Internal Control Requirements for Non-Issuers
Auditor must obtain and document understanding of client’s internal controls in order to assess the risk of material misstatement of the financial statements.
Internal Control Requirements of Issuers
Auditor is required to obtain and document the understanding in order to assess the risk of material misstatement of the financial statements and to plan and perform the audit. SOX also requires that auditors perform an integrated audit of both internal control over financial reporting and the financial statements.
Objectives of Internal Control
ACE
Accurate & Reliable Financial Reporting
Compliance with laws and regulations
Effectiveness and efficiency of operations
Elements of Internal Control
CRIME E-Control Environment R-Risk Assessment C-Control Activities I-Information and communication M-Monitoring
Control Environment
CHOPPER Commitment to competence Human Resource policies & practices Organizational structure Participation of those charged with governance Philosophy of management & operating style Ethical values & integrity Responsibility assignment
Procedures to obtain understanding of Internal Control
UPDATED Understand design of internal control (CRIME) Document understanding Assess Risk of Material Misstatement Test of Controls Evaluate Results and Reassess RMM Document Conclusions
Inherent limitations of internal controls
Collusion
Override by management
Competence
Obsolescence
Duties that should be segregated
ARCC
Authorization
Recording
Custody of Assets
Comparison (bank reconciliation)
How to check for proper segregation of ARCC
RIIO Reperfromance Inspection Inquiry Observation
Audit Procedures (Substantive Tests)
ICORRIIA Inquriry Confirmation Observation Recalcuation Reperformance Inspection of Tangible Assets Inspection (examination) of records and documents Analytical Procedures
