CH3 Internal Controls

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CH3 Internal Controls

Internal Control Examples

Adequate documentation

Background checks

Backup of computer files

Backup of power supplies

Bank reconciliation

Batch control totals

Data encryption

Document matching

Edit checks

Firewalls

Insurance and bonding

Internal audits

Limit checks

Lockbox systems

Physical security

Preformatted date entry screens

Prenumbered documents

Restrictive endorsement and daily deposits of checks received

Segregation of duties

User training

Risks

Hazard Risk

Strategic Risks

Business strategy risk

Legal and regulatory risk

Operational Risks

Human error risk

Systems risks

Financial Risks

Liquidity risk

Credit risk

Market risk

COSO's Internal Control Integrated Framework

Monitoring

To determine the quality of internal control performance.

Information & Communication

For an internal control system to function effectively, its purpose, methods, and results must be communicated throughout the organization.

Control Activities

Control activites refer to the actual internal controls implemented on the basis of the risk assessment.

Corrective controls

Detective controls

Preventative controls

Risk Assessment

Involves using a taxonomy, business experience, research, and dialogue to identify the risks associated with operations.

Control Environment

Control Environment refers to the tone at the top of the organization.

Internal Control Definition and Importance

Internal Control- A process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting and compliance with applicable laws and regulations.

Purposes of internal control

-Safeguarding assets

-Ensuring financial statement reliability

-Promoting operational efficiency

-Encouraging compliance with management's directives

Internal controls provide reasonable assurance in a few common areas, such as operations, financial reporting, and human behavior.

Internal controls are designed to provide reasonable assurance

Internal control necessarily involves people in the organization.

Internal Control is a process