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CH 13 Internal Control System SBL

The document defines internal control systems and their objectives such as ensuring organizational goals are met and assets are safeguarded. It discusses frameworks for internal controls from Turnbull and COSO. Key parties responsible for internal controls are the board of directors, senior management, and employees. Limitations include human error and deliberate circumvention. The document also outlines characteristics of effective information flow and fraud risk management.

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Haris Malik
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Download as DOCX, PDF, TXT or read online on Scribd
162 views

CH 13 Internal Control System SBL

The document defines internal control systems and their objectives such as ensuring organizational goals are met and assets are safeguarded. It discusses frameworks for internal controls from Turnbull and COSO. Key parties responsible for internal controls are the board of directors, senior management, and employees. Limitations include human error and deliberate circumvention. The document also outlines characteristics of effective information flow and fraud risk management.

Uploaded by

Haris Malik
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Internal control system

Definition and objectives


 System of controls to ensure organizational objectives are achieved
 Safeguard the assets and shareholders interest
 Responsibility of BOD to design and maintain internal control system
 It is beyond the evaluation of financial control
 Prevent the fraud and error
 Financial reporting system
Turnbull report on internal control systems
 Business objectives
 Key risk
 Controls to address the risk
 Review of internal control on regular basis
Limitation of internal control system
 Poor judgment
 Human error
 Deliberate circumvention by employees
 Unforeseeable circumstances
Role and responsibilities for internal control systems
 Responsibility
o BOD
o Senior management
o Business Unit heads
o Employees

 Role
o Adequacy and effectiveness of internal control system
o Setting internal control system
o Monitoring internal control system
o Internal control policies and procedure

COSO (Committee of Sponsoring Organizations of the Treadway Commission)


System to ensure the effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws rules and regulation
 Control environment
o Structures and roles – determine employee positions – sense of integration and
responsibility
o HR Policies – competent individuals fulfilling the roles
o Ethics and Culture – lead the company to probity, honesty and a sense of professional
control
 Control activities (SPAMSOAP)
o Delegation of control and responsibilities
o Appropriate effective control system
o Continuously monitoring
 Information and communication
o Financial reporting system
o Feedback on system performance
o Communication between strategic and operational management
o Reporting to shareholders
 Monitoring
o Effectiveness of audit committee
o Effectiveness of external auditor
o Role and effectiveness of internal auditor
 Risk Management (Identify, Assess, Plan and control)
o Assess the risk
o External and internal risk
o Controllable and uncontrollable risk
Sound Internal Control system
o Responsive Externally
o Integrated internally
o Embedded in culture
List of internal control
o Segregation of duties
o Physical (lock , key)
o Authorization and Approval
o Management
o Supervision
o Organization
o Arithmetic and accounting
o Personnel =HR
Information Flow for management
Strategic Information-monitoring and controlling
Tactical Information-Implementing decision of strategic managers
Operational Information-day to day operations
 Executive Information System
 Management Information system
 Decision Support System
 Transaction Processing system

Characteristics of Information
ACCURATE
Accurate
Cost effective
Complete
Understandable
Reliable
Access
Tine bounded
Easy to use

Fraud Risk Management


 Fraud Prevention
o Anti fraud culture
o Risk awareness
o Whistleblowing
o Internal control system
 Fraud Detection
o Regular checking of business operations
o Lack of information to auditor (audit observation)
o Unusual behavior by the staff
o Complex process
o One off transection
o Fast increase or decrease in business volume
o Staff behavior should be monitored
o Employee induction program
o Market news
o Teeming and lading

 Fraud response
o Internal action
o Report to concern authorities
o Involvement of law enforcement agencies
o Audit committee

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