Chapter 7 _ Gaining an understanding of the client_s system of internal controls.docx

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University of Toronto Scarborough
Financial Accounting
Kevin Ha

Chapter 7 – Gaining an understanding of the client’s system of internal controls 1. Define internal control 2. Explain the seven generally accepted objectives of internal control activities 3. Understand and describe the elements of internal control at the entity level 4. Understand and describe the elements of internal control at the transaction level, and apply them to the sales, purchases, and payroll cycles 5. Explain the different techniques used to document internal controls 6. Explain the importance of identifying strengths and weaknesses in a system of internal controls 7. Explain how to communicate internal control strengths and weaknesses to those charged with governance CAS 260 – communication with those charged with governance CAS 265 – Communicating deficiencies in internal control to those charged with governance and management CAS 315 – identifying and assessing the risks of material misstatement through understanding the entity and its environment 7.1 – Internal control defined  Defined: the process designed, implemented, and maintained by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations 7.2 – Objectives of internal controls  There are 7 objectives of internal controls: real, recorded, valued, classified, summarized, posted, and timely o Real – to ensure that fictitious or duplicate transactions are not included (occurrence, rights and obligations, and existence) o Recorded – prevent or detect the omission of transactions (accuracy, completeness, and valuations and allocation) o Valued – ensure
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