SU3-Internal Control Session1
Internal control- Overall
What is internal control?
Provides reasonable assurance on the achievement of an entity’s
objectives
Internal control links directly to the risks applicable to an entity
What are the objectives?
o Reliability of financial reporting
o Effectiveness and efficiency of operations
o Compliance with laws and regulations
Components of internal control
Five components:
1. Control environment
2. Risk assessment
3. Control activities
4. Information system + communication
5. Monitoring of controls
1. Control environment:
Integrity
Ethical values
HR policies and competence
Organisational structure
Overall values and attitude
2. Risk management:
Governance of risk, including risk management
Risk identification
Risk evaluation
Risk response
3. Information system + communication:
Business processes
Accounting system
Audit trail of transactions
Reports to be communicated internally
Process and activities in prepping the financial information
Accounting systems:
, 4 Stages:
Initiate
o Activities where the transaction begins or where it is
completed
Record
o Source documents are issued and prepared
o May be skipped if computerised
Process
o Entries are made in the actual records i.e. final invoices
prepared and recorded in journals ect.
Report
o All the above is combined to prepare the annual financial
statements ect.
Business process:
Revenue and receipts
o Sales to customers
o Payment received
Purchases and payments:
o Ordering + receiving from suppliers
o Making payments to suppliers
Inventory and production
o Manufacturing
o Safekeeping
Human Resources
o Employees
o Appointments, terminations
o Remuneration
4. Control activities:
Controls implemented by management to address risks identified
Internal control measures
Policies and procedures
5. Monitoring of controls:
Ensure implementation and application
Supervisors, management, those charged with governance
Internal audit
Control activities:
Internal control- Overall
What is internal control?
Provides reasonable assurance on the achievement of an entity’s
objectives
Internal control links directly to the risks applicable to an entity
What are the objectives?
o Reliability of financial reporting
o Effectiveness and efficiency of operations
o Compliance with laws and regulations
Components of internal control
Five components:
1. Control environment
2. Risk assessment
3. Control activities
4. Information system + communication
5. Monitoring of controls
1. Control environment:
Integrity
Ethical values
HR policies and competence
Organisational structure
Overall values and attitude
2. Risk management:
Governance of risk, including risk management
Risk identification
Risk evaluation
Risk response
3. Information system + communication:
Business processes
Accounting system
Audit trail of transactions
Reports to be communicated internally
Process and activities in prepping the financial information
Accounting systems:
, 4 Stages:
Initiate
o Activities where the transaction begins or where it is
completed
Record
o Source documents are issued and prepared
o May be skipped if computerised
Process
o Entries are made in the actual records i.e. final invoices
prepared and recorded in journals ect.
Report
o All the above is combined to prepare the annual financial
statements ect.
Business process:
Revenue and receipts
o Sales to customers
o Payment received
Purchases and payments:
o Ordering + receiving from suppliers
o Making payments to suppliers
Inventory and production
o Manufacturing
o Safekeeping
Human Resources
o Employees
o Appointments, terminations
o Remuneration
4. Control activities:
Controls implemented by management to address risks identified
Internal control measures
Policies and procedures
5. Monitoring of controls:
Ensure implementation and application
Supervisors, management, those charged with governance
Internal audit
Control activities:
