Behavioral Dimensions of

Internal Control
 Definition
• IC comprises the plan of organization and all
the methods to safeguard its assets, check the
accuracy and reliability of its accounting data,
promote operational efficiency, and
encourage adherence to managerial policies.
 IC problems
• Many crimes are conducted by or involving
insiders.
– Borrowing at higher interest rate and receive
bonus from the bank.
– Violating credit limit when boosting sales.
– Overpaying vendors and receiving rebates.
– Recording sales and deleting sales record by the
same persons.
– Making personal expense and charge the
company for it.
 Component of Internal Control
• Control environment (budaya, struktur
organisasi). Di saudi arabia kalo adzan barang
jualan ditinggal, gak ada yang ambim
• Risk assessment (kalau dihire sebagai auditor,
pasti melakukan risk assessment)
• Control activities (termasuk separation of duties)
• Information and communication (memastikan
informasi tepat waktu, LK keuanga tepat waktu)
• Monitoring (pengawasan sisi tv)
 Types of Internal Control
• Accounting controls:
– Separation of duties
– Physical controls of assets
– Authorization and approval
• Administrative controls:
– Employee training program
– Quality control
– Statistical analysis
 Benefits of Internal Controls
• Prevent the incidence of undesired behavior.
• Lower the cost of unwanted behavior.

• Limitation can be classified into:

– Motivation
• There is intention to commit unwanted behavior
– Ability
• Employees are unable to commit desired behavior
– Knowledge
• Employees do not have knowledge to do the desired action.
 Type of Internal Control
• Prevention
Specific
– Restriction of access
– Separation of duties
– Data validation before entry

General
– effective hiring and training policies
– Effective plan of organization
– Code of conduct (pemberitahuan mana yang boleh
dan yang tidak boleh)
 Type of Internal Control
• Detection
Specific
– Reconciliation of inventory counts vs. record
– Pre-numbered forms
– Reconciliation of reports entered vs. original
documents

General
– close supervision of personnel
– Use of an internal audit staff
– Scrutiny of financial reports
 Choices of Internal Control
• Depend on:
– Types of errors and irregularities that may be
faced
– Cost if an error or irregularity occurs
– Likelihood of occurrence (seberapa sering)
 Fraud triangle
• Pressure
– There is pressure (intention) to commit fraud (tekanan dari
investor, harga lembar saham tidak boleh turun). 60% dari
kecurangan adalah berasal dari revenue recognition
• Opportunity
– There is a possibility/room to commit fraud. Kalo internal
controlnya bagus makan tidak adalagi kesempatan
melakukan kecurangan.
• Rationalization
– Justification of fraud. Direktur keuangan enron keluar dari
penjara laris karena punya pengalaman yang menarik.
Ditahun yang sama dia CFO terbaik of the year.
Rasionalisasinya dia adalah semua orang melakukan itu.