Internal Control Framework Flashcards
What are the 5 components of internal control?
Control Environment
Risk Assessment
Information and Communication
Monitoring
(Existing) Control Activities
Think CRIME
Committee of Sponsoring Organizations (COSO) is a private organization that was established to:
Study factors that lead to fraud
What is one way to apply the organizational structure principle?
Maintaining reporting independence of the internal auditor
“Tone at the top” helps a company establish:
Compliance, Accountability, and Communication
Code of conduct that communicates the “tone at the top” to employees will not allow:
Exceptions to ethical behavior or the law in the name of competition
What kind of responsibility do Board of directors have to act on behalf of and in the best interest of the corporation?
Fiduciary
What would be an example of a company developing ethical values and ensuring that those values are understood and taken seriously?
A compliance program that includes both ethics training and a hotline for anonymous reporting
In the Internal Control Framework, which principle and which component are baseline expectations included in?
Accountability principle within the Control environment
Internal controls should ALWAYS be monitored for the purpose of:
Addressing changes to risks
Risk assessment component includes principles such as:
Financial reporting objectives, risks and fraud risk
On the COSO cube, what is shown on the 3rd dimension?
Organizational Structure (entity level, division, operating unit, function)
What is residual risk?
The risk that an organization incurs AFTER management takes action to mitigate the impact of an event
The Committee on Sponsoring Organizations prepared the Internal Control Integrate Framework to
Help businesses assess internal control
Name 3 categories of deficiencies used by auditors when evaluating internal controls
- Material weaknesses
- Control deficiencies
- Significant deficiencies
What is the objective of monitoring?
Assess the design and operation of internal controls on a timely basis and to take any necessary corrective actions
Give an example of an issue that would lead to a great concern regarding the effectiveness of an entity’s internal control
Errors from control failures that were NOT detected timely by the routine monitoring procedures
Because having routine monitoring procedures in place is important, but errors from control failures not detected in a timely manner by these procedures is problematic
Name 3 principles of the Control Environment
Board independence and oversight
Organizational structure
Accountability
What are the 3 primary factors that lead to fraud in the workplace?
Pressure/motivation
Opportunity
Rationalization
What kind of approach is the Integrated Framework built on and what does this allow managers to do?
Principles-based. It allows management to use judgement and flexibility in applying internal controls
