Chapter 10 - Internal Controls COSO

N types of control activities n segregation of duties

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n Types of control activities: n Segregation of duties n Access vs. Authorization vs. Accounting n Design vs. Operations vs. Data Control n Physical controls – to protect assets and information n Proper authorization of transactions (general vs. specific) n Adequate documents and records n Independent checks on performance n Information processing controls – focus on control objectives
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+ Monitoring n Mechanisms/processes designed to monitor the effectiveness and efficiency (design and operations) of internal control, and report such that corrections can be made. n Types of monitoring: n Ongoing n Management/superior attention n Complaint department n Regular inventory checks n Training/feedback n Periodic n Internal audit function n Self-evaluations (usually done by heads of departments)
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+ Limitations of Internal Control n Cost/benefit restrictions (small companies, SOX 404) n Insufficient independence to provide assurance to external parties n Poor judgment n Breakdowns n Collusion (can override even segregation of duties) n Management override
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+ Enterprise Risk Management (ERM)
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+ Use of Control Risk Matrix to Evaluate Controls n Identify audit objectives/assertions n Identify existing controls n Use control activities as a guidance to decide whether controls are adequate n Identify key controls: controls that are expected to have greatest effect on meeting the audit objectives n Associate controls with objectives n Identify and evaluate control deficiencies
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