Topic 5 Audit and Internal Control Part 2 Flashcards
What is APES 110?
- They outline the fundamental principles for professional ethics that accountants should follow
What are the fundamental principles of APES 110? (5)
o Integrity o Objectivity o Professional competence and due care o Confidentiality o Professional behaviour
What is internal control? (1)(3)
Mechanisms rules and procedures implemented by a company to ensure:
- the integrity of financial accounting information
- promote accountability
- prevent fraud
What are the objectives of internal control?
Safeguard assets against waste, fraud, and inefficiency
Promote reliability of accounting data
Encourage compliance with laws and regulation
What are the components/methods of Internal control systems?(5)
- Control Environment
- Risk Assessment
- Control activities
- Information and communication
- Monitoring
What is Control Environment
o The attitudes towards internal control by key management and employees within the organisation( organisations culture + risk appetite)
What is Risk Assessment
o Analyse and Identify sources of risk (threats to operations) and when they could happen
What is Control activities
o Policies and procedures to manage the risks identified
What is Information and communication
o Information needs to be communicated from management to other levels of employees, in order to identify risks and implement control procedures to manage those risks
What is Monitoring
o The policies and procedures put in place by management to ensure all employees abide by internal controls
What are the Limitations of Internal Control Systems? (5)
- Genuine Mistakes
- Management Override
- Collusion among employees
- Computer Fraud
- Cost versus benefit
Examples of Genuine mistakes(1)
o Misunderstanding Instructions
Examples of Management Override(2)
Increasing revenue to cover up falls in profits
Enhancing reported profit to meet analysts’ forecasts
