Internal control is the process designed to ensure reliable financial reporting, effective and efficient operations, and compliance with applicable laws and regulations. Safeguarding assets against theft and unauthorized use, acquisition, or disposal is also part of internal control. Show
Control environment. The management style and the expectations of upper‐level managers, particularly their control policies, determine the control environment. An effective control environment helps ensure that established policies and procedures are followed. The control environment includes independent oversight provided by a board of directors and, in publicly held companies, by an audit committee; management's integrity, ethical values, and philosophy; a defined organizational structure with competent and trustworthy employees; and the assignment of authority and responsibility. Control activities. Control activities are the specific policies and procedures management uses to achieve its objectives. The most important control activities involve segregation of duties, proper authorization of transactions and activities, adequate documents and records, physical control over assets and records, and independent checks on performance. A short description of each of these control activities appears below.
In order to identify and establish effective controls, management must continually assess the risk, monitor control implementation, and modify controls as needed. Top managers of publicly held companies must sign a statement of responsibility for internal controls and include this statement in their annual report to stockholders. In general, the objective of an internal audit is to assess the risk of material misstatement in financial reporting. Material misstatements can arise from inadequacies in internal controls and from inaccurate management assertions. As such, testing the validity of various implicit managerial assertions is a key objective of an internal auditor. While this applies to all financial cycles, this article is the next in a series focusing on Fixed Assets. The most important general control areas for Fixed Assets include:
In this post, we’ll focus on the General Control Activities for Initiating Fixed Asset Investment – Property, Plant, and Equipment (PP&E) Acquisition of the Fixed Asset cycle. Feasibility AnalysisAll capital expenditures over a defined value should have a feasibility analysis completed. It is important that feasibility analysis is accurate and as realistic as possible to support the capex acquisition decision. The following should be included in any audit:
Capex Voucher Preparation and ApprovalIt is important to ensure that capex projects/expenditures requested are adequately authorized and that all relevant management is aware of the capex projects. The following should be included in any audit:
Capex, Maintenance Budgeting and ForecastingCapex and Maintenance budgeting and forecasting must be accurate, support financial planning/budgeting, and meet business needs. Proper controls will provide realistic forecasting and prevent significant variances of capex expenditures against budget. The following should be included in any audit:
In conclusion, auditing standards require that auditors test basic underlying management assertions implicit in the financial statements. Key objectives to these assertions are; Existence and Completeness, Rights and Obligations, Valuation or Allocation, and Presentation and Disclosure. While this article provides a brief overview, we have a library of audit checklists, RCMs, and other useful audit tools, so please feel free to contact us should you have questions or like additional information. We would be happy to provide you what you need. What are the major elements of internal control over property, plant and equipment?The methods should be tailored to the specific needs of the chapter. There are five interrelated components of an internal control framework: control environment, risk assessment, control activities, information and communication, and monitoring.
What is meant by internal control?Internal control is a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance: That information is reliable, accurate and timely. Of compliance with applicable laws, regulations, contracts, policies and procedures.
What are the 3 types of internal controls?Internal Control Types and Activities. Preventive controls are proactive in that they attempt to deter or prevent undesirable events from occurring.. Corrective controls are put in place when errors or irregularities have been detected.. Detective controls provide evidence that an error or irregularity has occurred.. What are the 4 types of internal controls?Pre-approval of actions and transactions (such as a Travel Authorization) Access controls (such as passwords and Gatorlink authentication) Physical control over assets (i.e. locks on doors or a safe for cash/checks) Employee screening and training (such as the PRO3 Series to increase employee knowledge)
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