Click to edit Master title style

OVERVIEW
OF INTERNAL
CONTROL
P R E S E N T E D B Y:
KERBY ARLANDO
J U L E S C H R I S T I A N P. C R U Z
ALEXA NICOLE LAMA

1
Click to edit Master title style

NATURE AND
PURPOSE OF
INTERNAL CONTROL

2
 INTERNAL
Click to edit Master title style

DEFINITION CONTROL
Internal control is the process designed and effected by those charged
with governance, management and other personnel to provide
reasonable assurance about the achievement of the entity’s objectives.

OBJECTIVES:
RELIABILITY
Reliability of the entity’s financial reporting system.

EFFECTIVENESS AND EFFECIENCY

Effectiveness and efficiency of operations.
COMPLIES WITH LAWS
Complies with applicable laws and regulations.
3
 INTERNAL CONTROL
Click to edit Master title style
SYSTEM
WHAT IS INTERNAL CONTROL SYSTEM?
It is the internal control structure of a company consists of the
policies and procedures established to provide reasonable assurance
that specific entity objectives will be achieved.
PURPOS
E
Adherence to management policies
Safeguarding of assets
Prevention and detection of fraud and error
Accuracy and completeness of the accounting records
Timely preparation of reliable financial information
4
Click to edit Master title style

ELEMENTS OF
INTERNAL CONTROL

5
Click to edit Master title style
ELEMENTS
INTERNAL CONTROL
Internal control structures vary significantly from
one company to the next.

Factors such as size of the business, nature of operations,

the geographical dispersion of its activities, and objectives
of the organization affect the specific control features of an
organization.

6
 ELEMENTS
Click to edit Master title style

Control Entity’s Informatio Control Monitorin

Environmen Risk n System Activities g of
t Assessment Controls
Overall attitude, Process
Identification, Including the Policies an Final component
awareness and analysis, and Business Process, procedures that of internal control,
actions of management of relevant to help ensure that process that entity
directors and risks pertaining to Financial management uses to assess the
management the preparation of Reporting and directives are quality of internal
regarding the financial Information carried out control ever time
internal control statements
system and its
importance in the
entity
7
 CONTROL
Click to edit Master title style

ENVIRONMENT
DEFINITION
Overall attitude, awareness and actions of directors and management
regarding the internal control system and its importance in the entity.
This
has an effect on the effectiveness of the specific control procedures.
FACTORSFunction
REFLECTED
of the Board
Directors
Management’s philosophy
and operating style
Organizational structure
and methods of assigning
authority
Management’s control
system
8
 FACTORS COMPRISING
Click to edit Master title style
CONTROL ENVIRONMENT
• Communication and Enforcement
• Organizational Structure
of Integrity and Ethical Values
Use to assist entity in meeting its goals
Entity’s ethical and behavioral standards and objective and to ensure that
and the manner in which it communicates transactions are processed and reported
and reinforce them determine the entity’s in an accurate and timely manner.
integrity and ethical behavior.
• Assignment of Authority and
• Commitment to Competence
Responsibility
The knowledge and skills necessary to
Development of job descriptions to have a
accomplish tasks that define an
clear understanding of each personnel’s
employee’s job.
responsibilities.
• Participation by those Charged
• Human Resources Policies and
with Governance
Procedures
Entity’s control consciousness is
Most important element of an Internal
influenced significantly by those charged
accounting control. Enhance the
with governance.
likelihood that the client’s policies and
• Management’s Philosophy and procedures will be followed.
Operating Style
Management’s attitude towards business
risk, financial reporting, meeting budget,
profit and other established goals that
impacts reliability of financial statements.

9
 RISK ASSESSMENT
Click to edit Master title style
PROCESS
DEFINITION
Process of identifying and responding to business risks and the results
thereof.
Identification, analysis and management of risks pertaining to the
preparation of
financial statements.
Risks relevant to financial reporting include external and internal
events and
circumstances that may occur and adversely affect an entity’s ability
to initiate and
report financial data consistent to financial statement of the
management.

10
CIRCUMSTANCES
Click to edit Master titleWHERE
style RISKS
ARISE
• CHANGES IN OPERATING • NEW BUSINESS MODELS, PRODUCTS,
ENVIRONMENT OR ACTIVITIES
Can result in changes in competitive pressures Entering into business with which an entity has
and significantly different risks. little experience may introduce new risks
associated with internal control.
• NEW PERSONNEL
• CORPORATE RESTRUCTURING
May have a different focus on or understanding of
internal May be accompanied by staff reductions and
control. changes in supervision and segregation of duties.
• NEW OR REVAMPED INFORMATION • EXPANDED FOREIGN OPERATIONS
SYSTEMS Acquisition caries new and often unique risks that
Rapid changes in information systems can change may affect internal control.
the risk • NEW ACCOUNTING PRONOUNCEMENTS
relating to internal control.
Adoption of new accounting principles or
• RAPID GROWTH changing accounting principles may affect risks in
Rapid expansions can strain controls and increase preparing financial statements.
the risk of breakdown in controls.
• NEW TECHNOLOGY
11
May change the risks associated with internal
control.
 INFORMATION SYSTEM
Click to edit Master title style

THIS IS ESTABLISHED TO:

 Initiate, record and report entity transactions and to
maintain accountability for related assets
 Resolve incorrect processing of transactions
 Process and account for system overrides
 Transfer information from processing systems to the
general ledger
 Capture information relevant to financial reporting for
events other than transactions
 Ensure information required to be disclosed by the
applicable financial reporting framework and appropriately
reported in the financial statements

12
 RELATED TO FINANCIAL REPORTING
Click to edit
ANDMaster title style
COMMUNICATION
JOURNAL ENTRIES AN ENTITY’S BUSINESS PROCESSES ARE
This typically includes the use of standard journal THE
entries that are required on a recurring basis to ACTIVITIES DESINED TO
record transactions.  Develop, purchase, produce, sell and
distribute an entity’s products and services;
 Ensure compliance with laws and
RELATED BUSINESS PROCESSES regulations and
Results in the transactions that are recorded,  Record information, including accounting
processed and reported by the information system. and
 financial reporting information
AN INFORMATION SYSTEM ENCOMPASSES
METHODS AND RECORDS THAT
 Identify and record all valid transactions
 Describe on a timely basis the transactions to
permit proper classification of transactions for
financial reporting
 Measure the value of transactions
 Determine the time period in which transactions
occurred
 Presents properly the transactions and related 13

disclosures
Click to edit Master title style

CONTROL ACTIVITIES

14
 CONTROL ACTIVITIES
Click to edit Master title style

WHAT ARE CONTROL ACTIVITIES?

Control activities are the policies and procedures that help ensure that
the management directives to mitigate risks to the achievement of
objectives are carried out.

CLASSIFICATIONS:
GENERAL CONTROLS
General control are control activities that prevent or detect errors or
irregularities for all accounting system.
APPLICATION
CONTROLS
Application controls are controls that pertain to the processing of a
specific type of transactions, such as payrolls, or sales and collections.

15
 MAJOR CATEGORIES
Click to edit Master title style

PERFORMANCE REVIEW INFORMATION PROCESSING CONTROLS

In a performance review management uses accounting and operating Information processing controls are policies and procedures designed
data to assess performance, and it then takes corrective action. to require authorization of transactions and to ensure the accuracy
and completeness of transaction processing.
Such reviews include:
• Comparing actual performance with budgets, forecasts,
Control activities related to the processing of
prior period performance or competitor’s data transactions may be grouped as follows:
• Investigating performance indicators based on operating or • Proper authorization of transactions and activities
financial data. • Segregation of duties
• Reviewing functional or activity performance • Adequate documents and records
• Access to assets

PHYSICAL CONTROLS • Independent checks on performance

Physical controls that encompasses following:

• The physical security of assets
• The authorization for access to computer programs and data
files.
• The periodic counting and comparison with amounts shown
on control records.

16
 MONITORING OF
Click to edit Master title style
CONTROLS
WHAT IS MONITORING OF
CONTROLS?
 Process that an entity uses to assess the quality of internal control
over time.
 It involves assessing the design and operation of controls on a
timely basis and taking corrective action as necessary
MONITORING ACTIVITIES MAY INCLUDE
COMMUNICATIONS FROM EXTERNAL PARTIES:
• Customers
• Outside Auditors
• Bank Regulators and other Regulators

APPLICATION TO SMALL ENTITIES

 Informal
 Typically performed as a part of the overall management of the
17
entity’s operation
Click to edit Master title style

Thank You

18