Bus 426 - Lecture 4.docx

4 Pages

Business Administration
Course Code
BUS 426
Michael Favere- Marchesi

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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 o Information + Communications o Monitoring  If you have these, then it is a control system  Control Environment: The actions, policy and procedures that reflect the attitudes of top management o Management actions reduce incentives to engage in dishonest, illegal and unethical acts o Attitude of Management = The essence of a well- controlled entity o Knowledgeable Audit Committee has external and internal auditors o Management would operate ethically + honestly  Leading by example to employees o Is the authority + responsibilities clear? o Look at HR policies and practices, where do they get their people, how do they get their peop
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