INTRODUCTION

TO INTERNAL
CONTROL

PREPARED BY: MS. IDA

Internal Control Defined
It is a process designed and affected by those charged with governance management
and other personnel to provide reasonable assurance about the achievement of the
entity's objectives
Internal Control Defined
➔ Process
➔ TCWG (Those Charged With Governance)
➔ Provide reasonable assurance
➔ Achievement of objectives
THREE CATEGORIES OF ENTITY’S OBJECTIVES
1. Reliability of financial reporting
2. Effectiveness & Efficiency of operations
3. Compliance with laws and regulations
Components of Internal Control System (CRIME)
• Control activities

• Entity’s Risk assessment process

• Information system

• Monitoring controls

• The Control Environment

THE CONTROL ENVIRONMENT
Overall attitude, awareness and actions of directors and management regarding the
Internal Control System

Includes:

1. Communication and enforcement of integrity and ethical values

2. Commitment to competence
3. Participation by TCWG
4. Management’s Philosophy and Operating Style
5. Organizational Structure
THE CONTROL ENVIRONMENT
Overall attitude, awareness and actions of directors and management regarding the
Internal Control System

Includes:

6. Assignment of Authority and Responsibility

7. Human Resources Policies and Procedures
Entity’s Risk Assessment Process
Is the identification, analysis, and management of risks pertaining to the preparation
of financial statements

Risks arise from:

● Changes in operating environment

● New Personnel
● New or revamped information system
● Rapid Growth
● New Technology
Entity’s Risk Assessment Process
Is the identification, analysis, and management of risks pertaining to the preparation
of financial statements

Risks arise from:

● New business models, products or activities

● Corporate restructuring
● Expanded Foreign operations
● New Accounting pronouncements
Information System
Consists of infrastructure (physical and hardware components), software, people,
procedures and data.
Information systems encompasses methods and records that:
1. identify and record all valid transactions
2. describe on a timely basis the transactions in sufficient detail to permit proper
classification of transactions for financial reporting
3. measure the value of transactions in a manner that permits recording their
proper monetary value in the financial statements
4. determine the time period in which trend transactions occur to permit
recording of transactions in the proper accounting period
Information System
Consists of infrastructure (physical and hardware components), software, people,
procedures and data.

Information systems encompasses methods and records that:

5. present properly the transactions and related disclosures in the financial

statement
Control Activities
Are the policies and procedures that help ensure that management directives are
carried out

Major Categories of Control Procedures

● Performance Review
● Information Processing Controls
○ Proper Authorization of transactions
○ Segregation of Duties
○ Adequate documents and records
○ Safeguards over access to assets
○ Independent checks performance
● Physical Controls
Monitoring Controls
A process that an entity uses to assess the quality of internal control overtime

Includes:

● Evaluating the design and operation of internal control

● Communicating information about strengths and weaknesses
● Recommendation of actions to improve internal control

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