discuss the various components of internal control. explain managements role in
ID: 2590497 • Letter: D
Question
discuss the various components of internal control. explain managements role in establishing a good internal control environment. what role does internal auditors and external auditors have in the internal control process? discuss the various components of internal control. explain managements role in establishing a good internal control environment. what role does internal auditors and external auditors have in the internal control process? discuss the various components of internal control. explain managements role in establishing a good internal control environment. what role does internal auditors and external auditors have in the internal control process?Explanation / Answer
The Various components of Internal control are discussed as follows:
Control environment:
It is the framework through which an entity functions. It includes the governance and management function of an organisation. The attitude, awareness and actions of the persons responsible for designing, implementing and maintenance of internal controls determine the control environment.
Risk assessment process:
The risk assessment process is the basis for how management determines the risks to be managed. These processes will be based on the nature, size and complexity of the entity. The auditor shall through this process understand how the management assess the risk and steps taken to mitigate such risk.
Information systems:
The information systems include all the procedures and records which are designed to:
a. Initiate, record, process and report transactions
b. Maintain accountability for assets, liabilities and equity
c. Resolve incorrect processing of transactions
d. Process and account for system overrides
e. Transfer information to the general/nominal ledger
f. Capture information relevant to financial reporting for other events and conditions
g. Ensure information required to be disclosed is appropriately reported.
Control activities:
The control activities include all procedures designed to ensure that management directives are carried out throughout the entity such as
a. Authorisation and control of documents. Example as wages calculation and related pay slips authorisation
b. Performance review of the persons incharge
c. Information processing and controls over IT such as passwords, backups etc
d. Physical controls such as Security guards, Door locks, Biometric Systems etc
e. Segregation of duties such as preparer of a tranascction and authoriser for the transaction, reconciliation of accounts and ensuring the arithmetical accurancy
f. Control accounts preparation such as Wages, Vat etc
Monitoring of controls:
It is the process of assessing the effectiveness of controls over time and taking necessary remedial action. Monitoring of internal controls is often the key role of internal auditors. The statutory auditor may be able to rely on some of the work of internal audit.
Management's Roles and responsibilities in establishing a good internal control environment involves
a. communication and enforcement of integrity and ethical values
b. commitment to competence
c. participation by those charged with governance
d. management's philosophy and operating style
e. establishment of an organisational structure
f. assignment of authority and responsibility
g. development and implementation of human resource policies and practices
h. Reviewing the effectiveness of Internal control policy
Role of the Internal and External Auditors in the Internal control process:
The internal auditors and external auditors of the entity shall identify the efficiency and effectiveness of internal control. They ensure whether the design, implementation and maintenance of the internal control is performed adequately and accurately. They provide recommendations on improvement of the same. They also review Information technology controls, which relate to the IT systems of the organization. They ensure that the laws and regulations as per the SOX Act have been followed by the entity. They provide reasonable assurance that internal controls effective, they are tested by the external auditor who are required to opine on the internal controls of the company and the reliability of its financial reporting.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.