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3- Risk Management & Internal Controls

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a software that captures and records accounting business events

Application

ensures that the organization is operating in accordance with management's plan

Assurance

comprised of company's board of directors and outside board members with special qualifications in finance or accounting, objective is to oversee a company and internal audit has a direct line of communication with

Audit Commitee

COSO

Committee of Sponsoring Organizations of the Treadway Commission

internal control goals for adhering to laws and regulations

Compliance Objectives

Disclosure of instances of internal control not in compliance

External audit

Disclosure of significant internal control deficiencies

External audit

assess and identify risks and respond to risks at a portfolio-view level. Report results to key stakeholders

Performance

prevent problems from happening

Preventive Controls

-risk appetite -risk identifications -risk categorization -risk prioritization -heat maps

key course concepts risk assessment

Selects and develops control activities

related principles control activities

new publication with five interrelated components that highlight the importance of risk in creating strategies and driving a company's performance

Enterprise Risk Management Framework

Evaluates management's assessment of effectiveness of internal control and audit opinion of management's report

External audit

apply to the entire operation of the full system and its environment such as; all corporate applications, email, web browsers, time keeping software, benefits management systems, etc.

IT General Controls

a. Some defined processes b. Some defined controls c. Lack of documentation d. Primarily manual controls e. Inconsistencies f. Reliance on key individuals

Informal

continually obtain and share necessary information from both internal and external sources, flowing up, down, and across the company

Information Communication & Reporting

discovers improvements for policies, procedures, controls, and risk management

Insights

adds value to a business by providing assurance, insight, and objectivity to the company

Internal Audit

Defines internal control and gives criteria for developing, implementing, and monitoring and effective internal control system

Internal Control- Integrated Framework

controls-based approach to risk management that is widely accepted as the authoritative guidance on internal controls and SOX compliance

Internal Control- Integrated Framework

the process that specifically mitigates risks to the company's financial information

Internal Controls

An independent function of the company that has a unique reporting relationship in an organization

Internal audit

Included in annual financial statements

Internal control report

Includes assessment of effectiveness of internal control system

Internal control report

Management is responsible for implementing and maintain adequate internal controls

Internal control report

shows how far along a company is on its journey to reach the ideal state by comparing the current state to a predetermined set of best practices

Maturity Model

assesses the company through an independent consulting point of view

Objectivity

Framework required for:

1. Publicly traded companies in the U.S. and their subsidiaries 2. Foreign companies that are publicly traded and do business in the U.S. 3. Private companies planning their IPO to become a publicly traded company 4. Accounting firms performing audits of the above SOX regulated companies

when a control only applies to a specific application - including all the business processes and accounts that are linked to it

Application Controls

use technology to implement a control activity

Automated Controls

when two employees work together to circumvent controls

Collusion

Committed to fighting corporate fraud, is comprised of 5 private organizations that focus on providing guidance to executions and government entities on fraud prevention and response

Committee of Sponsoring Organizations of the Treadway Commission

Comprised of: American Accounting Association, American Institute of Certified Public Accountants, Institute of Internal Auditors, Institute of Management Accountants, and Financial Executives Institute

Committee of Sponsoring Organizations of the Treadway Commission

technology to create detective controls that use rules-based programming to monitor the business' data for red flags of risks

Continuous Monitoring

5 key steps to implementing an effective system of internal controls

Control Components

the three areas focused on achieving results

Control Objectives

the mechanisms, like rules, policies, or procedures, that make up the process of internal controls

Controls

change undesirable outcomes and occur after a risk has occurred

Corrective Controls

a. Clearly defined processes b. Clearly defined controls c. Formal documentation d. Mix of manual and automated controls e. No reliance on key individuals

Defined optimized

alert management to an issue once it has occurred

Detective Controls

effectiveness and efficiency of firm's daily functions, allocation of resources, operation and financial performance and prevention of losses

Operations Objectives

a. Enterprise-wide risk management b. Enterprise-wide control environment c. Top-down proactive approach d. Clearly defined processes e. Clearly defined controls f. Formal documentation g. Clear communication throughout organization h. More automated controls than manual controls i. Internal audit provides strategic value

Optimized

type of preventive control that lessens the risk of error and fraud by ensuring that different employees are responsible for the separate parts of a business activity of authorizing, recording, and having custody

Segregation/ Separation of Duties

measures the residual risk for technology attacks by comparing the relationship of the three control functions

Time-Based Model of Controls

comes with serious criminal penalties with fines up to $5 million and/or imprisonment up to 20 years

Violation of internal control requirements

presents a higher risk for management override of internal controls, which can have a significant impact on an organization's internal control efforts

a lax control environment

strategic planning process combines ERM, strategy, and objective setting to determine the risk appetite and align it with the business objectives

Strategy & Objective Setting

it is the most important component because it sets the overall tone for the organization

control environment

recall that companies should adopt risk-aware culture that starts with leadership setting an example, and entity-level risk activities

control environment

this is a foundation for other components, and includes the attitude of management concerning integrity and ethical behavior

control environment

to ensure the control environment is regularly assessed, SOX compliance requires a routine test of how internal controls are monitored and an annual control review by external auditors

control environment

-risk responses -internal controls

key course concepts control activities

-risk appetite -enterprise-wide risk management -business process maturity model -management override -SOX regulations

key course concepts control environment

-Quality information -Reporting -Data analytics -Internal audit -Management -Internal audit -Audit committee -Financial statements

key course concepts information and communication

-Management assessments -Internal audits -Audit committee reporting

key course concepts monitoring

is held responsible for financial reporting misstatements

management

management monitors business processes with detective controls and ensures that the controls are working appropriately

monitoring

this component is about assessing internal controls and determining whether changes should be made

monitoring

Deploys through policies and procedures

related principles control activities

Selects and develops general controls over technology (ITGCs)

related principles control activities

Demonstrates commitment to competence