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Assess The Control Environment

The control environment sets the tone for internal control and influences employee behavior. Management should be able to clearly articulate ethics and values, and employees should have adequate training. Internal control is effective when policies and procedures are implemented, including performance reviews, information processing controls, physical controls, and segregation of duties to reduce risks. The accounting information system impacts accuracy and efficiency, so data entry options and reporting capabilities should be examined. Management should regularly evaluate internal controls and monitor sensitive activities for effectiveness.

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Lyanna Mormont
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59 views

Assess The Control Environment

The control environment sets the tone for internal control and influences employee behavior. Management should be able to clearly articulate ethics and values, and employees should have adequate training. Internal control is effective when policies and procedures are implemented, including performance reviews, information processing controls, physical controls, and segregation of duties to reduce risks. The accounting information system impacts accuracy and efficiency, so data entry options and reporting capabilities should be examined. Management should regularly evaluate internal controls and monitor sensitive activities for effectiveness.

Uploaded by

Lyanna Mormont
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assess the Control Environment

The control environment is the foundation of internal control. It sets the tone of the organization and influences
how employees behave. Ask management about the company's values. If managers can't clearly articulate a set
of ethics and values, these may not be a priority in the company. Evaluate the credentials of the employees
involved in performing controls, particularly financial reporting. If employees don't have adequate training and
education, they might not be effective at maintaining the control system.

Investigate Control Activities

Internal control is only effective if it can be translated into easily implemented policies and procedures.
Performance reviews, informational processing controls, physical controls and segregation of duties are the
key control activities to look for. Performance reviews help management assess if employees are effective at
their jobs. Segregation of duties reduces the risk of mistakes and fraud. The biggest red flag in this area is an
individual who has custody of assets and also has record-keeping abilities. For example, if the same clerk
handles incoming checks and posts information to the accounting system, he can more easily manipulate the
accounts to steal revenue.

Examine the Accounting Information System

The accounting information system has a big impact on accuracy and efficiency. Inspect the data entry options
for transactions. Check whether clerks are able to enter all the information they need to make the journal entry
useful or whether the system is missing important fields. Ask the accounting personnel to generate reports for
you. Are the reports easily generated and error free? If not, the company may need a consultant to tweak the
accounting software.

Evaluate the Quality of Monitoring

Verify how often management evaluates internal controls. If management only looks at internal control
functions when absolutely necessary or for an audit, the system probably has holes. Management should be
actively following up on customer complaints and supervising sensitive activities. Controls are generally more
efficient when employees continually monitor internal control functions and make regular recommendations to
management.

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