Ais Exam 1 Controls

Front 1

Process implemented to provide assurance that a business objective is achieved.

Back 1

Internal Control

Front 2

Any potential adverse occurrence or unwanted event that could be injurious to either the AIS or organization.

Back 2

Threat or Event

Front 3

The potential dollar loss should a particular threat become a reality.

Back 3

Exposure or Impact

Front 4

The probability that the threat will happen

Back 4

Likelihood

Front 5

Exposure x Likelihood

Back 5

Expected Contingency

Front 6

-Safeguard Assets
-Maintain records in sufficient detail to accurately and fairly reflect company assets
-Provide accurate and reliable information
-Provide reasonable assurance that financial reporting is prepared in accordance with GAAP.
-Promoting and improving operational efficiency
-Encouraging adherence to prescribed managerial policies
-Complying with laws and regulations

Back 6

Common Control Objectives

Front 7

1. Identify and record all valid transactions
2. Properly classify transactions
3. Record transactions in their proper monetary value
4. Record transactions in the proper accounting period
5. Properly present transactions and related disclosures in the financial statements.

Back 7

The 5 Primary Control Objectives of an AIS

Front 8

ie: Locking Doors

Back 8

Types of Controls: Preventative

Front 9

ie: An alarm going off in your house, alerting you to something bad.

Back 9

Types of Controls: Detective

Front 10

ie: Correcting the activity from happening

Back 10

Types of Controls: Corrective

Front 11

Control pertains to the entire entity. ie: ID badge for entrance at the Pentagon.

Back 11

Types of Controls: General

Front 12

ie: A password on a computer

Back 12

Types of Controls: Application

Front 13

Importance: to establish internal controls.
Two main provisions:
1. Bribing foreign officials is illegal
2. Accounting records needed to be maintained for publicly traded companies (ie: accrual method and GAAP)

Back 13

Foreign Corrupt Practices Act 1977

Front 14

Applies to publicly held companies and their auditors.

Intended to prevent financial statement fraud, make financial reports more transparent, provide protection to inventors, strengthen the internal controls, and punish executives who perpetuate fraud.

Back 14

Sarbanes Oxley Act of 2002

Front 15

COBIT

Back 15

Control Objectives for Information and related Technology

Front 16

COSO

Back 16

Committee of Sponsoring Organizations

Front 17

ERM

Back 17

Enterprise Risk Management

Front 18

A private-sector group consisting of the American Accounting Association, the AICPA, the institute of internal auditors, the institute of management accountants, and the financial executives institute. Issued the Internal Control - Integrated Framework in 1992.

Back 18

COSO

Front 19

1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring

Back 19

5 Crucial Components of COSO

Front 20

Risks before anything is done to control it. (ie: casinos)

Back 20

Inherent Risk

Front 21

The risk that is left after the controls are in place.

Back 21

Residual Risk

Front 22

1. Estimate likelihood and impact
2. Estimate costs/benefits
3. Determine cost/benefit effectiveness

Back 22

Estimate Risk

Front 23

"SARA"
1. Share the risk
2. Accept the risk
3. Reduce the risk (control)
4. Avoid the risk

Back 23

Available Risk Responses

Front 24

"ARC"
1. Authorization
2. Recording
3. Custody

Back 24

Segregation (Separation of Duties)

Front 25

Actively reviewing the entire internal control process.

Back 25

Monitoring

Front 26

-Companies are formed to create value for owners
-Management must decide how much certainty
-Uncertainty results in risk
-The framework helps management manage uncertainty and its associated risk and opportunity.

Back 26

Basic Principles of the Enterprise Risk Management Framework

Front 27

1. Internal Environment
2. OBJECTIVE SETTING
3. EVIDENT IDENTIFICATION
4. Risk Assessment
5. RISK RESPONSE
6. Control Activities
7. Information and Communication
8. Monitoring

Back 27

ERM: 8 Interrelated Risk and Control Components
AKA: COSO Framework + 3

Front 28

Management sets the company's objectives: why the company exists, what it hopes to achieve

Back 28

ERM - Objective Setting

Front 29

"An incident or occurrence emanating from internal or external sources that affects implementation strategy or achievement objectives.

Back 29

Definition of COSO

Front 30

"SARA": How a firm will respond to each identified material risk.

Back 30

ERM - Risk Response

Front 31

More rightly sided

Back 31

COSO

Front 32

New, hollistic

Back 32

ERM

Front 33

1. Identify Objectives
2. Assess the Internal Environment
3. Identify (Material Negative) Events
4. Assess Risk
5. Risk Response (SARA)
6. Create Control Activities
7. Establish Information and Communication Needs
8. Set Monitoring Plan

Example: To arrive on class on time everyday as a teacher.

Back 33

Practical Application to Create an Internal Control System using ERM?