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BusinessAllstars.comBusinessAllstars.comPresentsPresents
Copyright © 2004 by Gainbridge AssociatesCopyright © 2004 by Gainbridge AssociatesAll right reservedAll right reserved
This material may not be used or reproducedThis material may not be used or reproducedwithout permission of Gainbridge Associateswithout permission of Gainbridge Associates
INTERNALINTERNALCONTROLSCONTROLS
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Internal Controls areInternal Controls are
The policies and procedures The policies and procedures management utilizes management utilizes
to to protect assetsprotect assets and and
assure that recordsassure that records
are accurate and reliable.are accurate and reliable.
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A – Control Environment A – Control Environment
Board of directors or Audit Board of directors or Audit CommitteeCommittee
Management’s philosophy Management’s philosophy and operating styleand operating style
Organizational structureOrganizational structureAssignment of authority Assignment of authority
and responsibilityand responsibilityHuman resource policies Human resource policies
and practicesand practices
Integrity,Integrity,Ethical Values,Ethical Values,
and and Commitment to Commitment to
CompetenceCompetence must be present must be present
at all levels:at all levels:
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B – Risk Assessment B – Risk Assessment
A concerted effort must be made to:A concerted effort must be made to:
Identify factorsIdentify factors affecting risks affecting risks
Assess significanceAssess significance of risks and of risks and likelihood of occurrencelikelihood of occurrence
Determine Determine actions necessaryactions necessary to to manage risksmanage risks
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C - Control ActivitiesC - Control Activities
1- Hire honest, competent employees trained for their task.1- Hire honest, competent employees trained for their task.
2- Bond employees against potential loss.2- Bond employees against potential loss.
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C - Control ActivitiesC - Control Activities
3- Separation of duties3- Separation of duties
4- Require vacations and rotate 4- Require vacations and rotate employees. employees.
Authorization CustodyRecording
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C - Control ActivitiesC - Control Activities
5- Proper authorization of 5- Proper authorization of transactions and activitiestransactions and activities
6- Procedures 6- Procedures Manuals Manuals
7- Pre-numbered7- Pre-numbered sequential sequential documentsdocuments
2438224383
2438424385
2438624387
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C - Control ActivitiesC - Control Activities
8- Safeguard all physical 8- Safeguard all physical assets and their related assets and their related
recordsrecords
9- Independent check on 9- Independent check on performanceperformance
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D – Information & Communication D – Information & Communication
Records will be checked for:Records will be checked for:
AAccuracyccuracy
CCompletenessompleteness
CClassificationlassification
EExistencexistence
PPosting and osting and summarizationsummarization
TTimingiming A C C E P T
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E - Monitoring E - Monitoring
1.1. Data is subject to Data is subject to edit checksedit checks and matched to and matched to approved control files.approved control files.
2.2. Transactions are accounted for in Transactions are accounted for in numeric numeric sequence. sequence.
3.3. File File totals are comparedtotals are compared with control accounts. with control accounts.
4.4. Exceptions are examinedExceptions are examined and acted upon. and acted upon.
5.5. AccessAccess is granted to only is granted to only authorized authorized individuals.individuals.
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Procedures for TestingProcedures for Testing Internal ControlsInternal Controls
Make Make InquiriesInquiries of Appropriate personnel of Appropriate personnel
ExamineExamine Documents, Records, and Documents, Records, and ReportsReports
ObserveObserve Control-Related Activities Control-Related Activities
Re-performRe-perform Procedures Procedures
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Management Management Assessment ProcessAssessment Process
http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf
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Auditor’s Auditor’s responsibilitiesresponsibilities in the in the
Audit of Internal Audit of Internal Control over Control over
Financial ReportingFinancial Reporting
http://www.kpmg.de/library/pdf/http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf040413_SOX404_PCAOB_Requirements_en.pdf
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Taking the long view = ValueTaking the long view = Value
http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf
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Management Report is required to includeManagement Report is required to include
1. A statement of 1. A statement of management’s management’s responsibilityresponsibility for establishing and for establishing and maintaining adequate internal control maintaining adequate internal control over financial reporting for the over financial reporting for the companycompany
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Management Report is required to includeManagement Report is required to include
2. A statement identifying the 2. A statement identifying the framework usedframework used by management to by management to conduct the required assessment of conduct the required assessment of the effectiveness of the company’s the effectiveness of the company’s internal controls over financial internal controls over financial statementsstatements
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Management Report is required to includeManagement Report is required to include
3. An assessment of the 3. An assessment of the effectivenesseffectiveness of the company’s internal controls of the company’s internal controls over financial reporting as of the end over financial reporting as of the end of the company’s most recent fiscal of the company’s most recent fiscal year, including an explicit statement year, including an explicit statement as to whether the internal controls as to whether the internal controls over financial reporting is effective.over financial reporting is effective.
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Management Report is required to includeManagement Report is required to include
4. A statement that the registered 4. A statement that the registered public accounting firmpublic accounting firm that audited the that audited the financial statements included in the financial statements included in the annual report has issued an annual report has issued an attestation reportattestation report on management’s on management’s assessment of the company’s internal assessment of the company’s internal controls over financial reporting.controls over financial reporting.