INF2004F Summary Notes.docx

Statutory sanctions 6 excessive costs 7 loss or

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Statutory sanctions 6. Excessive costs 7. Loss or destruction of resources 8. Competitive disadvantage Internal controls (Preventive, detective & corrective) Internal control – process done by board of directors, management in order to provide reasonable assurance with regards to achievement of objectives in following categories: Effectiveness & efficiency of operations Reliability of financial reporting- prepare them to established criteria Compliance with relevant laws & regulations Functions of Internal controls: Preventive controls – prevent occurrence of problems – e.g.) cash receipts are immediately deposited Detective controls – discover problems that are not prevented – e.g.) unauthorised transaction discovered during reconciliation process Corrective controls – identify and correct problems and recover – e.g.) finds an error, processing an adjusting entry Components of internal controls NB* Five components: 1. Control environment – general attitude at the management or executive level 2. Risk assessment – Identify & analyse risks 3. Control activities – policies & procedures in place 4. Information & communication – information processed in a form and time frame in which people can do their jobs 5. Monitoring – assess quality of controls over time General and Application controls: 1. General controls which ensure that the organizations control environment is stable and well managed
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2. Application controls that prevent, detect, and correct transaction errors and fraud in application programs Control Frameworks (COBIT, COSO, COSO ERM- Enterprise risk management) COBIT Framework: framework for IT control Consolidate system security & control standards in a single framework Current version = COBIT 5 Benefit of standard framework for IT controls: Management – benchmark environment & compare to other organisations Comprehensive framework – assurances IT security and controls exist Auditors – prove their opinions about internal control COSO Internal Control Framework: framework for enterprise internal controls (controls-based approach) Policies and procedures – control business activities Problem: difficult to know which control systems are most important & does not adequately address IT issues Control environment – attributes of people & environment in which they operate Control activities – control policies and procedures, ensuring organisation addresses risks and achieves objectives COSO Enterprise Risk Management Framework: New and improved version of integrated control framework Set strategy Identify what might affect the organisation Assess and manage risks Provide reasonable assurance with regards to achievement of business objectives ERM (Enterprise Risk Management) Framework: Manage uncertainty Create and preserve value Adds three additional elements to COSO IC framework: Set strategy Identify what might affect the organisation
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