ch 6 - notes

ch 6 - notes - Chapter 6 Wednesday, February 27, 2008 9:24...

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Chapter 6 Wednesday, February 27, 2008 9:24 AM Introduction: Threat - potential adverse occurrence or unwanted event that could be injure the AIS or  the organization Exposure or impact - dollar loss that would occur Likelihood - probability that threat will occur   Overview of Control Concepts: Internal Control Process implemented by the board of directors, management Purpose: to provide reasonable assurance following control objectives are  achieved: Safeguarding assets (including data); preventing or detecting, on a timely  basis, the unauthorized acquisition, use, or disposition of material company  assets Maintaining records in sufficient detail to accurately and fairly reflect  company assets Providing accurate and reliable information Providing reasonable assurance that financial reporting is prepared in  accordance with GAAP Promoting and improving operational efficiency, including making sure  company receipts and expenditures are made in accordance with management  and directors' authorizations Encouraging adherence to prescribed managerial policies Complying with applicable laws and regulations A process because it permeates an organization's operating activities and is an  integral part of basic management activities Provides reasonable assurance (NOT absolute assurance) Absolute(complete) assurance is difficult to achieve and prohibitively  expensive Limitations: Susceptible to simple errors and mistakes Faulty judgments and decision making Being overridden by management Two or more employees colluding with each other Internal control objectives are often at odds with each other
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Controls to safeguard assets may also reduce operational efficiency Three important functions: Preventive controls Deter problems before they arise Hiring highly qualified accounting personnel, appropriately  segregating employee duties, effectively controlling physical access to  assets, facilities, and information Detective controls Discover problems as soon as they arise Duplicate checking of calculations and preparing bank  reconciliations and monthly trial balances Corrective controls Remedy control problems that have been discovered Include procedures taken to identify the cause of a problem,  correct resulting errors or difficulties, and modify the system so that future  problems are minimized or eliminated Maintaining backup copies of transaction files and master files and  adhering to procedures for correcting data entry errors as well as those  for resubmitting transactions for subsequent processing Internal controls are often classified as:
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ch 6 - notes - Chapter 6 Wednesday, February 27, 2008 9:24...

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