College of Accountancy and Business Administration

2nd Semester, A.Y. 2021-2022

MODULE 9

OVERVIEW OF INTERNAL CONTROL 

TRUE OR FALSE
Write TRUE if the statement is correct and if FALSE underlined the word and write the appropriate word to
make the statement correct. Write your answer on the space provided before the number.
TRUE 1. General controls are control activities that prevent or detect errors or irregularities for all
accounting systems.
FALSE 2. Manager monitors controls to consider whether they are operating as limited as intended and to
modify them as appropriate for changes in conditions.
TRUE 3. The control environment has an effect on the effectiveness of the specific control procedures. 
FALSE 4. Performance review may be classified according to the scope of the system they affect. 
FALSE 5. General controls are controls that pertain to the processing of a specific type of transaction, such
a payroll, or sales and collections. 
TRUE 6. Communication involves providing an understanding of individual roles and responsibilities
pertaining to internal control over financial reporting. 
TRUE 7. Organizational structure provides the overall framework for planning, directing, and controlling
operations. 
TRUE 8. The control environment has an effect on the effectiveness of the specific control procedures. 
FALSE 9. Significant and rapid expansion in information system can change the risk relating to internal
control. 
FALSE 10. The concepts underlying application controls in small entities are likely to be similar to those in
larger entities, but the formality with which they operate varies. 
ENUMERATION 
Give at least 5 factors comprise the control environment 

 Communication and Enforcement of Integrity and Ethical Values

 Commitment to Competence
 Participation by those Charged with Governance
 Management Philosophy and Operating Style
 Organizational Structure

IDENTIFICATION
1. Minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and
encourage adherence to policies, rules, regulations, and laws. 
INTERNAL CONTROLS FUNCTION
2. Its characteristically summed up as a series of policies and procedures or technical protections that are
put in place to prevent problems and protect the assets of a business organization. 
INTERNAL CONTROLS
3. The overall attitude, awareness and action of directors and management regarding the internal control
system and its importance in the entity. 
CONTROL ENVIRONMENT
4. Is the identification, analysis of management risks pertaining to the preparation of financial statement. 
RISK ASSESSMENT
5. Evaluate the design and operation of internal control and communicate information about the strengths
and weaknesses and recommendations for improving internal control. 
INTERNAL AUDITORS

ESSAY
1. For you what is the meaning of internal environment?
The internal environment includes factors that the organization controls. For example, the organization's
culture, product development, mission and strategy are all part of the internal environment. It  consists of
members of the firm itself, investors in the firm, and the assets a firm has. Employees and managers are
good examples; they are firm members who have skills and knowledge that are valuable assets to their
firms. Evaluating a firm’s internal environment is not just a matter of counting heads, however. Successful
firms have a wide range of resources and capabilities that they can use to maintain their success and grow
into new ventures. A thorough analysis of a firm’s internal situation provides a manager with an
understanding of the resources available to pursue new initiatives, innovate, and plan for future success.

2. What is the relationship among the five components of internal control?

Control Environment includes the attitudes, awareness, and actions of the management and those charged with
governance concerning the entity’s Internal Control and its importance in the entity. Such as the Integrity and ethical
values, Management philosophy and operating style, Active participation of those charged w/ governance,
Commitment in competence, Personnel policies and procedures and the like. While in the risk assessment
management adopt policies and procedures that are designed to identify and analyze business risks.

And with Information and Communication Systems, it encompasses methods and records that: identify and record all
valid transactions, describe on a timely basis the transactions in sufficient detail to permit proper classification,
measure transactions in their proper monetary value, determine the time period to permit recording of transactions in
proper accounting period, and present properly the transactions and disclosures in FS. With that, the Control
Activities connects its function which are policies and procedures that help ensure that management directives are
carried out. And of course, an organization needed a monitoring system that process and assessing the quality of
internal control performance over time and make sure that everything about the internal environment runs smoothly.