Internal Control consists of 5 interrelated components and 17 principles associated with those components. Show
5 Components and 17 Principals1. Control EnvironmentControl environment is the attitude toward internal control and control consciousness established and maintained by the management and the employees of an organization. It is a product of management’s philosophy, style and supportive attitude, as well as the competence, ethical values, integrity, and morale of the organization’s people. The organization structure and accountability relationships are key factors in the control environment. Principles for the Control Environment 1. Demonstrates commitment to integrity and ethical values 2. Communication and InformationCommunication is the exchange of useful information between and among people and organizations to support decisions and coordinate activities. Within an organization, information should be communicated to management and other employees who need it in a form and within a time frame that helps them to carry out their responsibilities. Communication also takes place with outside parties such as customers, suppliers and regulators. Principles for Communication and Information 6. Uses relevant information 3. Risk AssessmentRisks are events that threaten the accomplishment of objectives. They ultimately impact an organization’s ability to accomplish its mission. Risk assessment is the process of identifying, evaluating and determining how to manage these events. At every level within an organization there are both internal and external risks that could prevent the accomplishment of established objectives. Ideally, management should seek to prevent these risks. However, sometimes management cannot prevent the risk from occurring. In such cases, management should decide whether to accept the risk, reduce the risk to acceptable levels, or avoid the risk. To have reasonable assurance that the organization will achieve its objectives, management should ensure each risk is assessed and handled properly. Principles for Risk Assessment 9. Specifies suitable objectives Impact – Is generally beyond the organization’s control in the short-to-medium term. What are the possible risks in your area of operations and what is the likely impact of each? How to Deal With Risk Managing Risk Preventing or Reducing
Risk Managing Risk during Change 4. Control ActivitiesControl activities are tools - both manual and automated - that help prevent or reduce the risks that can impede accomplishment of the organization’s objectives and mission. Management should establish control activities to effectively and efficiently accomplish the organization’s objectives and mission. Principles for Control Activities 13. Selects and develops control activities 5. MonitoringMonitoring is the review of an organization’s activities and transactions to assess the quality of performance over time and to determine whether controls are effective. Management should focus monitoring efforts on internal control and achievement of organization objectives. For monitoring to be most effective, all employees need to understand the organization’s mission, objectives, and responsibilities and risk tolerance levels. Principles for Monitoring 16. Conducts ongoing and/or separate evaluations Guide for Evaluating Risk
What are the policies procedures and activities that are part of a control framework designed to ensure?Control processes are the policies, procedures (both manual and automated), and activities that are part of a control framework, designed and operated to ensure that risks are contained within the level that an organization is willing to accept.
What are control policies and procedures?Internal control policies and procedures are checks and balances that help protect a company from internal threats, such as theft, embezzlement and mismanagement of funds by employees, suppliers or customers.
What are the four policies and procedures of internal control?Tip. The seven internal control procedures are separation of duties, access controls, physical audits, standardized documentation, trial balances, periodic reconciliations, and approval authority.
What are the common control procedures or activities?Control activities include approvals, authorizations, verifications, reconciliations, reviews of performance, security of assets, segregation of duties, and controls over information systems. Approvals, Authorizations, and Verifications (Preventive).
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