Class Notes (834,804)
Australia (1,844)
Accountancy (152)
AYB301 (20)
All (19)
Lecture 4

Lecture 4 - Internal Control Evaluation.docx

3 Pages
Unlock Document

All Professors

LECTURE 4 – INTERNAL CONTROL EVALUATION Internal Control  Internal control is a process designed to provide reasonable assurance of: o Generating reliable financial accounting information o Safeguarding assets o Operating efficiently and effectively o Complying with applicable laws and regulations. A Framework for Control  Objective o Reliability of financial reporting  Purchase a good IT system o Effectiveness and efficiency of operations  Monitoring, budget to actual per store o Safeguarding assets  Board approval > $Xm  Check-out procedures, receipts and till-balancing o Compliance with law  Audit committee review Components of an Internal Control System • Control environment: overall attitude, awareness and actions of significant internal groups to maintain a well- controlled organisation (tone at the top) • Risk assessment: process designed to identify and manage risks that may affect the organisation’s ability to achieve its objectives • Control activities: policies and procedures established by management to help ensure that internal control objectives are achieved and risks mitigated • Information and communication: the process of identifying, capturing and exchanging information in a timely fashion to enable the organisation to achieve its objectives • Monitoring: a process that assesses the quality of internal controls over time Control Environment  There are a number of factors an auditor should look at when evaluating an organisation’s control environment: o Management’s philosophy and o Human resource policies and practices operating style o Integrity and ethical values o Organisational structure, including o Commitment to competence assignment of authority and o Compensation and evaluation programs responsibility o Effectiveness of the internal audit o Board of directors and audit committee function. Risk Assessment  There are a number of factors an auditor should look at when evaluating an organisation’s risk assessment: o Set KPIs, such as gross margin per store and review regularly. o # of customer complaints Control Activities  Some control procedures are found in almost all accounting systems: o Segregation of incompatible duties o Physical controls to limit access to o Authorisation procedures assets o Documented transaction trail o Independent reconciliation o Competent, trustworthy employees. Accounting Information Systems • Accounting systems capture, record, summarise and report information. Monitoring  Management often requests reports on the quality of its internal controls in order to ensure the company can achieve its major objectives and is not exposed to unnecessary risks  Management receives reports from three sources: o Ongoing monitoring reports from operations o Internal audit reports o External audit reports. Internal Control and Financial Statement Account Balances • Auditors assess control risk for each relevant assertion for each important class of transactions and account balance as a basis for planning the audit. • Auditors need to evaluate the effectiveness of internal control over financial reporting for accounting applications that process material transactions. Relationship of Controls to Auditing • The quality of internal controls affects the organisation’s operating effectiveness and ultimately its ability to remain a going concern. • The quality of internal controls drives the audit approach and amount of testing. Control Effectiveness and Control Risk Asse
More Less

Related notes for AYB301

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.