Week 4 controls - L ecture 4 I n ternal Control Evaluation...

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Internal control o Systems put in place by management to make business run more smoothly Why do we care about controls o Business risks create errors in financial statements-unwanted for business, auditors and financial statement users Errors are unwanted due to: Time consuming and costly to fix errors Management make wrong decisions if information is wrong-e.g. make wrong investments, reward wrong staff Management can be held legally responsible for errors in financial statements and poor internal control Internal controls are put in place to mitigate these costs/risks Auditors look for material errors in FS, business risk cause errors, internal controls reduce errors and less audit testing is needed How much audit testing required depends on size of error, business risk, internal control. o Auditors only need to understand those internal controls relevant to the audit to the extent it allows material errors to be identified. Internal control framework o Control environment Communication and enforcement of integrity and ethical values Employ competent (won’t make mistakes) and ethical staff (won’t try to cover up mistakes) Commitment to competence Participation by those charged with governance
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BoD must take an interest in the internal control system and set the tone for the whole organisation Management philosophy and operating style Set the lead Organisational structure Assignment of authority and responsibility Put in place procedures and make sure they are followed HR policies and practices
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This note was uploaded on 10/04/2011 for the course ACCT 3708 taught by Professor - during the Three '11 term at University of New South Wales.

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Week 4 controls - L ecture 4 I n ternal Control Evaluation...

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