Chapter 3 - Internal Controls

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MARK MALLOCH BROWN

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After Twenty Years

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Chapter 3 - Internal Controls (IC)

Sabanes-Oxley Act, 2002

External audit of IC, Required Disclosures to SEC, Management Certification, Management Signatures

Foreign Corrupt Practices Act, 1977

Help clean up bribes, international fraud, accounting, and other business acts

Monitioring

continual process, exaple is internal auditors

Info & Communication

installing virus protection, correct user access

Control Activities

Preventive, Detective, and Corrective Controls - SOC I Reports

Risk Assessment

Evaluating internal control, external and internal auditors

Control Enviornment

tone from the top of the organization

The organization responsible for maintaining ICs.

Brown's Risk Taxonomy

Hazard Risk

Directors' and officers' liability - any big risk (Enron)

Strategic Risk

Business Strategy Risk

Legal and Reulatory Risk

Operational

Human Error

System Risk

Financial Risk

Liquidity Risk - sufficient cash for ST obligations

Credit Risk - payment from people who owe money

Market Risk - stock price, investment values, interest rates, etc.

Effect areas such as Operations, Financial Reporting, and Human Behavior

Designed to provide "reasonable assurance"

Involves people in the organization

It's a process

COSO Framework