Ohne Titel

INTERNAL CONTROL

“A process, effected by the entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance.”

Effective internal control reduces the risk of asset loss, and helps ensure that plan information is complete and accurate, financial statements are reliable, and the plan's operations are conducted in accordance with the provisions of applicable laws and regulations.

The means of internal control are:

Internal control of an organization may be viewed as including five components:

Preventive controls: are aimed at avoiding the occurrence of misstatements in the financial statements.

Detective controls: are designed to discover misstatements after they have occurred.

Corrective control: ​​​​​​is ordinarily needed to remedy the situation.

(1) The control environment: It is defined by the standards, processes, and structures that guide individuals in carrying out their duties.

(2) Risk assessment: is management’s process for identifying, analyzing, and responding to risks.

(3) Control activities: are policies and procedures that help mitigate the risk that the organization’s objectives are not met.

(4) An organization’s accounting information system consists of the methods and records established to record, process, summarize, and report an entity’s transactions and to maintain accountability for the related assets, liabilities, and equity.

(5) Monitoring of Controls: Is a process to assess the quality of internal control performance over time.

There are 5 basic principles that the control environment involve:

Commitment to integrity and ethical values, Effective board of directors, Effective organizational structure, Attracting, Developing, and Retaining Competent Employees and Individual accountability.

Risk tolerance is really important, it is the acceptable level of variation in performance relative to the achievement of objectives. Some risk responses are: avoidance, reduction, sharing and acceptance.

Types of control activities relevant to an audit of the organization’s financial statements:

Performance reviews, Transaction processing controls, Physical controls and Segregation of duties

1. Identify and record all valid transactions, 2. Describe on a timely basis the transactions in sufficient detail to permit proper classification of transactions for financial reporting, 3. Measure the value of transactions in a manner that permits recording their proper monetary value in the financial statements, 4. Determine the time period in which transactions occurred to permit recording of transactions in the proper accounting period and 5.Present properly the transactions and related disclosures in the financial statements.

The basic principles are that the organization should:

Select, develop, and perform ongoing and separate monitoring evaluations and Evaluate and communicate internal control deficiencies in a timely manner.

They are complementary in that they function together to achieve the same control objective.

These controls have some characteristics:

Redundant if they address the same fi nancial statement assertion or control objective.

Compensating control reduces the risk that an existing or potential control weakness will result in a misstatement.