syllabus area F controls Flashcards
does the IA audit design controls?
no, board of directors do. they assess risk, mitigate it by designing controls and implementing them. IA just checks and reports to audit committee
what is the turnbull criteria of assessing the need for internal audit?
-Scale, diversity and complexity of the company’s operations
-Number of employees
-Cost-benefit considerations
-Changes in organisation structure
-Changes in key risks
-Problems with internal control systems
-Increased number of unexplained or unacceptable events
internal audit article summmary
Internal audit plays a crucial role in an organization’s corporate governance framework and is often regarded as a high-level control mechanism in response to risks.
The decision to establish an internal audit department depends on factors like complexity, regulatory requirements, industry-specific risks, and the potential consequences of compliance failures.
Internal auditors need to be skilled, independent, and objective in assessing the effectiveness of controls and risk management systems.
The audit committee oversees internal audit activities and ensures that they align with the company’s strategic objectives and compliance needs.
Independence is critical for internal auditors to avoid ethical threats and ensure the effectiveness of their work.
While internal audit can address operational level controls, it may have limitations in monitoring strategic level controls, which ultimately fall under the responsibility of the board.
The scope of internal audit work varies between organizations and can encompass areas like value for money audits, IT audits, financial audits, and operational audits, depending on the organization’s needs and concerns.
Internal audit can also play a role in monitoring corporate social responsibility (CSR) policies and aligning them with corporate objectives and external requirements.
Overall, internal audit is an essential part of the control system and should maintain integrity, professionalism, and independence in its operations.
why are environmental audits a thing?
-The social and environmental accounting movement emerged in the mid-1980s, advocating for businesses to report not only their financial performance but also their social and environmental impacts.
-Existing accounting methods focused on financial performance, leaving a gap in accounting for non-costable impacts, leading to the development of modern social and environmental accounting.
-Traditional cost allocation methods do not account for externalities, such as the environmental consequences of production, leading to incomplete cost reflection.
For instance, the true cost of beef production should include the environmental costs associated with deforestation, loss of habitat, and greenhouse gas emissions, which are often not factored into the price.
Why environmental impact information abt company is demanded by investors?
1) Environmental issues represent potential risks, including legal liabilities and reputational damage.
2) Ethical considerations influence consumer choices, as some individuals avoid businesses with poor social and environmental records.
3) Investors, not just those in ethical funds, are incorporating social and environmental performance into their investment decisions, making it a mainstream criterion.
what are environmental audits?
-Environmental audits and reports allow organizations to address concerns related to environmental impact, responsiveness, and stakeholder expectations.
-While environmental audits are usually voluntary, they help organizations establish data collection systems for environmental reporting.
-An environmental audit typically consists of three elements: 1)agreed-upon metrics, 2)performance measurement against these metrics
3) Reporting on compliance or variance levels.
-Stakeholder pressure often drives organizations, especially large ones in developed countries, to conduct environmental audits and produce annual environmental reports.
-Metrics in environmental audits are context-specific and can include emissions (e.g., pollution, waste, greenhouse gases) and resource consumption (e.g., energy, water, non-renewable materials), collectively known as the environmental footprint.
Many organizations aim to reduce their environmental footprint or “unit footprint” per unit of output and set targets for these reductions, although reporting practices vary.
-A recent trend is adopting a more quantitative approach to social and environmental audits, which helps readers better understand an organization’s environmental performance by reporting data against targets or trends.
what is the importance of having an internal control system
Protect Assets: Keep valuable resources safe.
Manage Risks: Identify and reduce potential problems.
Prevent Fraud: Deter fraudulent activities.
Ensure Compliance: Meet legal and regulatory requirements.
Ensure Financial Accuracy: Provide reliable financial data.
Improve Efficiency: Streamline processes and resource use.
Establish Accountability: Assign clear responsibilities.
Secure Data: Protect sensitive information.
Prevent Errors: Minimize mistakes in operations.
Build Trust: Enhance an organization’s reputation.
Promote Improvement: Encourage continuous enhancement.
Support Governance: Provide assurance to boards and management.
In summary, internal controls are the foundation for good governance, risk management, and compliance, ensuring an organization’s integrity, transparency, and long-term success.
components of an internal control system?
-control environment (culture tone attitude)
-entity risk assessment process (identify,assess,monitor)
-information and communication (gathering the right info, and passing it on time, to the correct person)
-control activities (preventative measures
-monitoring of control- detective measures
role of audit committee
-indpendent, comprise of NEDs
-oversee both internal and external auditors
-recommend fees, removal and appointment of external auditor to SH
-monitor work of external auditor
-monitor, direct, delegate, create the internal audit
-IA reports to AC
role of the audit committee if there is no internal audit function?
-annually assess the need for having an IA
-recommend to the board wether to have an IA or not
-give disclosures
internal control reporting to SH according to sarbanes oxley
-both the strategic management and external auditor to publish a statement on adequacy of IC over financial reporting
-IA,AC to provide feedback to the BOD on internal control robustness
-external auditor to perform TOC and give an opinion on adequacy of ICs over financial reporting
management statement on IC over financial reporting must contain
-acknowledgement of management responsibilities
-framework used to assess and evaluate ICs
-the process of assessing IC over financial reporting and the result of this assessment
-statement from manager that external auditor has also issued a statement
What are the main requirements of EMAS/ ISO 14000
It’s a voluntary environment management system to help companies improve environmental performance
Main requirements are:
-conduct an overview
-establish environmental policy, commit to improving and compliance to laws
-set measurable and achievable environmental targets and make a plan
-implement the plan
-regularly monitor and measure targets
-document and record
-communication with STAKEHOLDERS
-train employees to carry out environmental responsibility
-audits regularly
-annual environmental statements
Benefits of emas
Cut costs of resources and waste
Less risk of fines
Benefit from environmental regulations
Stakeholders relationship
Reputation , transparency
