Sec E - Internal Controls Flashcards
Internal Controls - purposes
To provide reasonable assurance regarding the achievement of an entities objectives objectives involving:
1) Effectiveness and efficiency of operations
2) Reliability of financial reporting
3) Compliance with applicable laws and regulations
Five Components of COSO’s Internal Control Framework
1) Control environment
2) Risk assessment
3) Existing control activities
4) Information and communication
5) Monitoring
Four types of functional responsibilities that should be separated
1) authority to execute transactions
2) recording transactions
3) custody of assets
4) reconciliations of existing assets to recorded amounts
System Controls
Input Controls — accurate complete and valid
Processing Controls — Security safety and validity
Output Controls — completeness and accuracy of data, only authorized users may access data
SOX Section 201
Services outside the scope of practice by auditors
SOX Section 203
Partner rotation
SOX Section 204
Audit partner report to the audit committee in a timely manner
SOX Section 302
Corporate responsibility for financial reports
SOX Section 404
Management assessment of internal controls; annual report; responsibility for establishing and maintaining proper internal control
SOX Section 407
One member of the audit committee must be considered a financial expert
Input controls ensure that…
The inputs are accurate and complete and valid
Processing controls ensure…
the security safety and validity of the data that has been put into the system
Output controls…
Maintain the completeness and accuracy of data as well as ensuring that only authorized users may access the data
There is an inverse relationship between _______ risk and combined ________ risk
Detection; control and inherent
