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Lecture 4

BUS 426 Lecture Notes - Lecture 4: Audit Risk, Financial Statement, Regional Policy Of The European Union


Department
Business Administration
Course Code
BUS 426
Professor
Michael Favere- Marchesi
Lecture
4

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Lecture 4
Internal Controls, are policies and procedures designed to provide
reasonable assurance for management to achieve goals and objectives
Objectives of Internal Controls
1. To provide reliable financial information
i. Internal controls over financial reporting
ii. Auditors most concerned with objective 1
2. Efficiency + Effectiveness of operations
i. Internal auditors cares a lot about this, auditors don’t
care
3. Compliance with laws and regulations
Management’s Objective to Internal Controls
1. Maintain reliable control system
2. Safeguard assets
3. Optimize the use of resources
4. Prevent or detect errors/frauds
Auditor’s Objective to Internal Controls
1. Plan the audit process which includes evaluating internal
controls and assess control risk
2. Consider only internal controls over financial reporting
Management Responsibility
Establish + maintain proper system of internal controls
Auditor Responsibility
Evaluate the controls + probably test controls if they will rely
on the controls
o If relying on controls, only needs to have a reasonable
assurance, not absolute
o Recognize that the internal controls has inherent
limitations
1. Effectiveness of system depends on completeness
+ dependability of individuals that execute the
controls
2. Internal controls can be overridden by collusion
Frameworks for the Internal Control System
Control Environment
o Risk Assessment
o Control Activities
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