Act 359 final exams

Chapter 9 Introduction to internal control systems

Internal controls: the controls established to protect the assets of an organization.

Internal control: describes the policies, plans, and procedures implemented by the management of an organization to protect its assets, to ensure accuracy and completeness of its financial information, and to meet its business objectives.

Four objectives of internal control system: 1. Safeguard assets, 2. Check the accuracy and reliability of accounting data, 3. Promote operational efficiency, 4. Enforce prescribed managerial policies.

Sarbanes Oxley Act of 2002 piece of legislation with respect to internal controls
Section 404: reaffirms management is responsible for establishing and maintaining an adequate internal control structure.

1992 Coso report: established common definition of internal control for assessing control system, as well as determined how to improve controls. An internal control system should consist of the five components: 1. The control environment 2. Risk assessment 3. Control activities 4. Information and communication 5. Monitoring

Control environment: foundation for all other internal control components and provides discipline and structure. Top management oversight, integrity, and ethical principles that guide the organization

Risk assessment: identify organizational risks, analyze their potential in terms of costs and likelihood of occurrence, and implement only those controls whose projected benefits outweigh their cost

Control Activities: policies and procedures that management develops. Example, approvals, authorizations, verifications, reconciliations, reviews, and segregation od duty

Information and communication: managers inform employees about their roles and responsibilities pertaining to internal control. Employees feel safe communicating