Accounting 3600 Chapter 6

Front 1

internal controls

Back 1

policies/procedures that are implemented by the company to provide reasonable assurance that objectives can be met

Front 2

1. assets including data are safeguarded
2. records are kept in sufficient detail to correctly represent transactions
3. info. systems generate reliable and accurate information
4. financial statements prepared according to GAAP
5. operation efficiency promoted/encouraged
6. organization compliant with laws/regulations
7. policies and procedures are followed by employees

Back 2

internal control objectives - 7

Front 3

1. preventive
2. detective
3. corrective

Back 3

3 types of internal controls

Front 4

1. COSO framework
2. ERM framework

Back 4

2 types of internal controls frameworks

Front 5

COSO Framework

Back 5

committee of sponsoring organizations 1992 - provides guidance to companies for designing and implementing internal controls system. #1 source

Front 6

1. control environment
2. control activities
3. risk assessment
4. information and communication
5. monitor

Back 6

5 components to COSO framework

Front 7

ERM Framework

Back 7

enterprise risk management framework; improve and update original framework

Front 8

1. internal environment
2. objective setting
3. event identification
4. risk assessment
5. risk response
6. control activities
7. information/communication
8. monitor

Back 8

8 components to ERM framework

Front 9

internal environment

Back 9

foundation of the ERM framework; most important. (contains seven parts)

Front 10

1. management philosophy, operating style, risk appetite
2. board of directors
3. commitment to ethical values
4. organizational structure
5. methods of assigning responsibility/authority
6. human resources standards
7. external factors

Back 10

internal environment 7 components

Front 11

audit committee

Back 11

committee within the board of directors that should be made up of independent directors only

Front 12

organizational chart

Back 12

organizational structure example - shows who reports to whom within a company

Front 13

objective setting

Back 13

company should have clearly defined objectives representing the reason it exists (ex. mission statement)

Front 14

event identification

Back 14

management should identify events that could hinder meeting company objectives (ex. risks)

Front 15

inherent risk

Back 15

natural risk of an event; risk of an event occurring assuming no internal controls

Front 16

residual risk

Back 16

risk of an event happening after internal controls have been implemented

Front 17

1. reduce risk - implement informal controls
2. avoid risk - don't engage in activity
3. accept risk - no controls
4. share the risk with a third party

Back 17

4 risk responses

Front 18

1. identify events
2. assess likelihood of occurring
3. identify internal controls
4. identify cost/benefits of identified controls
5. determine risk response

Back 18

risk assessment and response process

Front 19

control activities

Back 19

actual policies/procedures implemented by a company that represent their internal controls

Front 20

1. authorization
2. recording
3. custody

Back 20

segregation of duties - 3

Front 21

authorization

Back 21

ability to approve transactions, invoices, source documents

Front 22

recording

Back 22

maintaining journals, ledgers, putting authorized transactions into accounting records

Front 23

custody

Back 23

actual possession of company assets

Front 24

collusion

Back 24

2 or more people work together to override the controls and commit fraud