Control, security and audit
——Control procedures
Objectives
01 Control environment
02 Control procedures
03 Internal check
Internal control
Control
environment
Control
procedure
01 Control environment
Control environment
It is the overall context of control, in particular
the attitude of directors and managers towards
control.
The nature of control environment
The management style, corporate culture and
values shared by all employees.
A strong control environment
Clear strategies for dealing with risks.
Company culture supports risk management.
A climate of competence, integrity and trust.
Clear definition of authority and accountability.
Clear communication to employees.
People manage risks effectively.
02 Control procedure
They are the detailed controls in place.
Classification of control procedure
Classification 1:
Classification Comment
Administration／ Focus on achieving the objectives of
non-financial the organisation and implementing
policies
Accounting／ Aim to provide accurate accounting
financial records and achieve accountability
Classification 2:
Classification Comment
Prevent errors from happening in the
Prevent first place
Detect Detect errors happened
Correct Minimising the effect of errors
Other classification
a.Discretionary （human discretion可任意支配）
Non-discretionary（automatically by system不可任意支配）
b. Voluntary (chosen by organisation)
Mandated (require by laws or regulations)
c. Manual (one to one relationship)
Automated ( programmed procedures to prevent ,
detect , and correct errors )
d. General Reduce risk associated with
Application computer environment
e. Financial
Focus on the key transaction areas，with the emphasis
being on the safeguarding of assets and the maintenance
of proper accounting records and reliable financial
information.
Example question
Some controls are provided automatically by the system and
cannot be by-passed, ignored or overridden: for example, having
to input a password to enter a computer system. These are
classified as _______ controls.
Which term correctly completes the statement?
A. Detect
B. Mandated
C. Non-discretionary
D. Administrative
C
Types of financial control procedure “SPAMSOAP”
Segregation of duty. For example, the chairman/Chief
Executive roles should be split.
Physical. These are measures to secure the custody of
assets, eg only authorized personnel are allowed to move
funds on to the money market.
Authorisation and approval. All transactions should require
authorisation or approval by an appropriate responsible
person; limits for the authorisations should be specified.
Management should provide control through analysis
and review of accounts, eg variance analysis, provision
of internal audit services.
Supervision of the recording and operations of day-to-
day transactions.
Organisation : identify reporting lines, levels of authority
and responsibility.
Arithmetical and accounting: to check the correct and
accurate recording and processing of transactions, eg
reconciliations, trial balances.
Personnel. Attention should be given to selection,
training and qualifications of personnel, as well as
personal qualities
03 Internal check
Part of internal control
Internal checks are the checks on the day-to-day
transactions.
Segregate tasks
Proof measures
Internal check
Aims of internal check
(a) Segregate tasks
(b) Create and preserve the records as confirmation
(c) Break down routine procedures into steps
(d) Reduce the possibility of fraud and error
Arithmetical internal checks include pre-lists, post-
lists and control totals.
A pre-list is a list that is drawn up before any processing
takes place.
A post-list is a list that is drawn up during or after
processing.
检查总计
A control total is a total of any sort used for control
purposes by comparing it with another total that ought to
be the same.
Example question
Which of the following is not an aim of internal controls?
A. To enable the firm to respond appropriately to
business, operational and financial risks
B. To break down routine procedures into steps
C. To help ensure the quality of internal and external
reporting
D. To help compliance with applicable laws and
regulations
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