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Chp07 - InternalControl Slide 7 1 InternalControl q...

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Slide 7- 1 Internal Control
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Slide 7- 2 Internal Control Historical Development Treadway Commission recommendations related to internal control: » Competent and involved audit committees » Active and objective internal audit function » Committee of Sponsoring Organizations (COSO) Establish a common definition of internal control Provide a standard against which business and other entities can assess their control systems and determine how to improve them.
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Slide 7- 3 Internal Control  COSO COSO Internal Control – Integrated Framework definition of internal control: A process , effected by the entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives on: » Effectiveness and efficiency of operations » Reliability of financial reporting » Compliance with applicable laws and regulations
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Slide 7- 4 Components of Internal Control  The Control Environment Risk Assessment The Accounting Information and Communication System Control Activities Monitoring
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Slide 7- 5 Control Environment Factors Integrity and ethical values Commitment to competence Board of directors or audit committee Management philosophy and operating style Organizational structure Assignment of authority and responsibility Human resource policies and practices
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Slide 7- 6   Risk Assessment Factors related to increased financial reporting risk: Changes in the regulatory or operating environment Changes in personnel Implementation of a new or modified information system Rapid growth of the organization Changes in technology affecting production processes or information systems Introduction of new lines of business, products, or processes
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