Chapter_14 - Chapter 14 Enterprise System Risks and...

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Chapter 14 Enterprise System Risks and Controls
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Risks, Opportunities and Controls Risks A risk is any exposure to the chance of injury or loss Opportunities and Objectives Opportunity and risk are related. Controls A control is an activity performed to minimize or eliminate risk
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Internal Control Systems Sarbanes-Oxley Act requires publicly traded companies to issue reports on their internal control systems along with their annual financial statements Management is responsible for establishing and maintaining adequate internal controls for financial reporting Reports must include assessments of the effectiveness of internal controls and the financial reporting procedures The Act also requires auditors to attest to and report on management’s assessments
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COSO Internal Control Integrated Framework The Committee of Sponsoring Organizations (COSO) is a private sector group consisting of AAA, AICPA, IIA, IMA and FEI. COSO’s internal control integrated framework is considered the authority on internal controls. COSO’s internal control model has five components: Control environment Risk assessment Control activities Information and Communication Monitoring
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Control Environment Control environment sets the tone for the organization. This foundation provides discipline and structure upon which all other components of internal control are built. The control environment includes the following areas: Integrity and ethical behavior Commitment to competence Board of director and audit committee participation Management philosophy and style Assignment of authority and responsibility Human resource policies and practices
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Risk Assessment Risk assessment identifies and analyzes the relevant risks associated with the organization achieving its objectives Risk assessment forms the basis for determining what risks need to be controlled and the controls required to manage them.
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Control Activities Control activities are the policies and procedures the organization uses to ensure that necessary actions are taken to minimize risks associated with achieving its objectives. Controls have various objectives and may be applied at various organization and functional levels (CEO, senior management, departmental etc.).
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Control Activities Objectives – Prevent, Detect and Correct Preventive controls focus on preventing an error or irregularity. Detective controls focus on identifying when an error irregularity has occurred. Corrective controls focus on recovering from, repairing the damage from, or minimizing the cost of an error or irregularity. All else being equal, it is best to prevent errors and irregularities Error vs. Irregularity Error is a mistake Irregularity is an intentional effort to cause loss to an enterprise
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Information and Communication The information system consists of the methods and records used to record, maintain, and report enterprise
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Chapter_14 - Chapter 14 Enterprise System Risks and...

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