Internal Control Monitoring and Terminology Flashcards
Why monitor controls?
Entropy- Over time controls deteriorate
Technology improvements
Changes in management techniques
People quit and take vacations
What are the benefits of control monitoring?
Lessen negative effects of entropy
Identify IC problems before they become crises
More timely, accurate, and reliable information, certifications of IC
Maximize efficiency and reduce costs
Who evaluates controls
Evaluators
- Monitor internal controls. Must have skills, knowledge, and authority to enable them to:
1) Understand risks
2) Identify critical controls related to managing and mitigating those risks
3) Conduct and/or oversee monitoring information
Must be competence and objective
Define competence:
Evaluators knowledge of controls and related processes
What is board monitoring?
Monitoring by board or its committees
Includes evaluating management’s monitoring process and assessment of risk and management override of controls
Define self-assessment?
“self” here is the unit or function
Assessment may be by personal who operate the control (i.e. self-review) peer or supervisory review within the same unit as control
Persons responsible for a particular unit or function
Define Self-Review?
One review’s their own work.
LEAST objective type of “self-assessment”
What is the order of review objectivity from least to most?
Self Review
Peer Review
Supervisor Review
Impartial Review
What is a compensating control?
Control accomplishes the same objective as another control and can “compensate” for deficiencies in that control
What are key controls?
Most important to assessing IC system’s ability to manage or mitigate meaningful risks.
- Failure in this could cause significant fraud or prevent the organization from meeting it’s objectives
What are key performance indicators?
Metrics that assess critical success factors
Help measure progress
What is direct information
Directly substantiates operation of a control. Must link directly to a judgment regarding the effective operation of control
Highly persuasive
Obtained by observing controls
What is indirect information?
Relevant to assessing whether controls are operating and underlying risk is mitigated
Is not explicit evidence regarding whether controls are operating effectively
E.G. Analytical procedures
