132CHAPTER 7 - Internal Control CHAPTER Internal Control 7...

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1 Bob Anderson, UCSB CHAPTER 7-1 7 CHAPTER Internal Control Bob Anderson, UCSB Chapter 7-2 Second standard of fieldwork: A sufficient understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed. Internal Control Consideration of IC has two primary objectives: 1. Aid in planning remainder of audit 2. Assess control risk Bob Anderson, UCSB Chapter 7-3 Summary of Internal Control Definition A process ...designed to provide reasonable assurance...regarding, achievement of (the entity’s) objectives on: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations Bob Anderson, UCSB Chapter 7-4 Some Standard Controls You want to prevent being ripped off, mistakes, fraudulent reporting, etc. What can you think of that you can do to manage these risks? Segregation of duties Is it a good idea to have the person who signs checks also responsible for generating a check? Management review System barriers Do not pay unless a vendor has been approved Do not sell goods to a customer in excess of their credit limit Do not post an entry which does not balance Involve others- like your bank Certain “signers” based on materiality Opening new accounts
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2 Bob Anderson, UCSB Chapter 7-5 Components of Internal Control I. The Control Environment II.
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