Lesson 4 - Internal controls

Question 1

What are the six key characteristics of internal control? (AUE2602)

Answer 1

• Internal control is a process
• Internal control is effected by people
• Internal control is not the sole responsibility of management
• Internal control is not static
• Internal control is not fool proof
• Internal control is not a case of a single control addressing a single risk.

Question 2

Define internal controls in terms of ISA 315.

Answer 2

ISA 315.4(c) defines internal control as the process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regards to:
- the reliability of the entity’s financial reporting;
- the effectiveness and efficiency of its operations; and
- its compliance with applicable laws and regulations

Question 3

List the five components of internal control.

Answer 3

1. Control environment
2. Risk assessment
3. Information systems
4. Control activities
5. Monitoring of controls

Question 4

List six type of control activities.

Answer 4

• Approval, authorisation
• Segregation of duties
• Isolation of responsibility
• Access/custody
• Comparison and reconciliation
• Performance reviews

Question 5

What are general controls?

Answer 5

General controls are defined as those controls which establish an overall framework of control for computer activities, and they span across all applications.

Question 6

List three examples of general physical access controls.

Answer 6

• Control over visitors from outside the company to the IT building.
• Controlled access to company personnel other than IT personnel
• Access control over remote workstations/terminals

Question 7

List three examples of logical access controls.

Answer 7

• identification of users and computer resources
• authentication of users and computer resources
• authorisation of the levels of access to be granted

Question 8

Define application controls.

Answer 8

Application controls as any control within an application which contributes to the accurate and complete recording and processing of transactions.

Question 9

List 6 control techniques and application controls applicable to the input stage which a transaction flows through the system.

Answer 9

Access control
Authorisation
Batching
Screen aids and related features
Program controls relating to input
Existence/validity checks