ACC – Internal Control System – Flashcards
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threat/event
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potential adverse occurrence
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exposure/impact
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potential dollar loss
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likelihood
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probability that the threat will happen
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internal controls
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processes implemented to provide reasonable assurance that control objectives are met
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Internal control functions
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- Preventive - Detective - Corrective
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preventive controls
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hiring qualified personnel, segregation of duties, controlling physical access
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detective controls
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(discover problems that are not prevented) duplicate checking of calculations and preparing bank reconciliations and monthly trial balances
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corrective controls
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maintaining backup copies of files, correcting data entry errors, resubmitting transactions
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internal control categories
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- general - application
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general controls
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make sure an organization's control environment is stable and well managed. Ex: security, IT infrastructure, software acquisition, development and maintenance controls
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application controls
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prevent, detect, and correct transaction errors and fraud in application programs. They're concerned with the accuracy, completeness, validity, and authorization of the data captured, entered, processed, stored, transmitted to other systems, and reported.
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SOX
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-Prevent financial statement fraud -Make financial reports more transparent -Protect investors -Strengthen internal controls in publicly-held companies -Punish executives who perpetrate fraud
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COSO's Internal Control Framework
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private sector group consisting of: The American Accounting Association, The AICPA, The Institute of Internal Auditors, The Institute of Management Accountants, The Financial Executives Institute
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COBIT framework
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framework of generally applicable information systems security and control practices for IT control.
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COSO internal control framework
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-Defines internal controls. -Provides guidance for evaluating and enhancing internal control systems. -Widely accepted as the authority on internal controls.
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Enterprise Risk Management framework (ERM)
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An enhanced corporate governance document. Takes a risk-based, rather than controls-based, approach to the organization. Oriented toward future and constant change. Incorporates rather than replaces COSO's internal control framework
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COSO's components
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- control environment - risk assessment - control activities - information and communication - monitoring
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control environment
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ethical values, responsibility, structure and authority, competence, accountability
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risk assessment
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suitable objectives, identify/analyze risk, change
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control activities
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control activities, technology controls, policies and procedures
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information and communication
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relevant information, external and internal communication
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monitoring activities
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evaluations, find deficiencies
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risk appetite
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amount of risk a company is willing to accept to achieve its goals and objectives
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inherent risk
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susceptibility of a set of accounts or transactions to significant control problems in the absence of internal controls
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residual risk
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risk that remains after management implements internal controls
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expected loss
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= impact ($ loss) * likelihood (probability)
