considered major components internal control * point risk assessment segregation duties control activities monitoring

Which of the following is not considered one of the five major components of internal control * 1 point risk assessment segregation of duties control activities monitoring?

The following internal control activities can be found in the workplace. All employees fit into the organizational picture of internal control, whether or not their job responsibilities are directly related to these example activities.

Segregation of Duties

Duties are divided among different employees to reduce the risk of error or inappropriate actions. For example, responsibilities for receiving cash or checks, preparing the deposit, and reconciling the deposit should be separated.

Authorization and Approval

Transactions should be authorized and approved to help ensure the activity is consistent with departmental or institutional goals and objectives. For example, a department may have a policy that all purchase requisitions and invoice vouchers must be approved by the director. It is important that the person who approves transactions have the authority to do so and the necessary knowledge to make informed decisions.

Reconciliation and Review

Performance reviews of specific functions or activities may focus on compliance, financial, or operational issues. Reconciliation involves cross-checking transactions or records of activity to ensure that the information reported is accurate. For example, revenue and expense activity recorded on accounting reports should be reconciled or compared to supporting documents to ensure that the transactions are recorded in the correct account and for the right amount.

Physical Security

Equipment, inventories, cash, checks, and other assets should be physically secured and periodically counted and compared with amounts shown on control records. For example, the periodic confirmation of equipment by individual departments is a physical security control.

WHAT DOES COSO STAND FOR?

In 1992, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) developed a COSO Framework for evaluating internal controls. This model has been adopted as the generally accepted framework for internal control and is widely recognized as the definitive standard against which organizations measure the effectiveness of their systems of internal control. 

WHAT IS THE COSO FRAMEWORK?

The COSOmodel defines internal control as “a process effected by an entity’s board of directors, management and other personnel designed to provide reasonable assurance of the achievement of objectives in the following categories:

  • Operational Effectiveness and Efficiency
  • Financial Reporting Reliability
  • Applicable Laws and Regulations Compliance

In an effective internal control system, the following five components work to support the achievement of an entity’s mission, strategies and related business objectives:

  1. Control Environment
  • Exercise integrity and ethical values.
  • Make a commitment to competence.
  • Use the board of directors and audit committee.
  • Facilitate management’s philosophy and operating style.
  • Create organizational structure.
  • Issue assignment of authority and responsibility.
  • Utilize human resources policies and procedures.
  1. Risk Assessment
  • Create companywide objectives.
  • Incorporate process-level objectives.
  • Perform risk identification and analysis.
  • Manage change.
  1. Control Activities
  • Follow policies and procedures.
  • Improve security (application and network).
  • Conduct application change management.
  • Plan business continuity/backups.
  • Perform outsourcing.
  1. Information and Communication
  • Measure quality of information.
  • Measure effectiveness of communication.
  1. Monitoring
  • Perform ongoing monitoring.
  • Conduct separate evaluations.
  • Report deficiencies.

These components work to establish the foundation for sound internal control within the company through directed leadership, shared values and a culture that emphasizes accountability for control. The various risks facing the company are identified and assessed routinely at all levels and within all functions in the organization. Control activities and other mechanisms are proactively designed to address and mitigate the significant risks. Information critical to identifying risks and meeting business objectives is communicated through established channels across the company. The entire system of internal control is monitored continuously, and problems are addressed timely.

KnowledgeLeader offers a number of resources on COSO, including the items listed below. Explore the website for additional knowledge on this topic.

Entity-Level Controls Risk Assessment Questionnaire
Entity-Level Controls Fraud Questionnaire
Entity-Level Controls Environment Questionnaire

What are the 5 internal control components?

There are five interrelated components of an internal control framework: control environment, risk assessment, control activities, information and communication, and monitoring.

Which of the following is not one of the five components of internal control?

The correct answer is D) Auditing system. The basic categories of internal control are the following; Control Environment. Risk Assessment.

Which of the following is not considered one of the major components of internal control?

Which of the following is NOT one of the key components of internal control? Compliance is one of the objectives of internal control, it is not one of the key components of internal control.

What are the 4 internal controls?

Preventive Controls Separation of duties. Pre-approval of actions and transactions (such as a Travel Authorization) Access controls (such as passwords and Gatorlink authentication) Physical control over assets (i.e. locks on doors or a safe for cash/checks)

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