Chapter 5 - Internal Controls (Objectives and Components)

Reporting:

Reporting objectives include producing reliable and timely accounting in formation for use by people internal and external to the organization.

Control Environment:

The control environment refers to the attitude that people in the organization hold regarding internal control. A strong control environment helps employees understand the value of internal controls to their organization's success.

Information and Communication:

An effective internal control system generates and communicates information about activities affecting the organization to support sound decision making.

Compliance:

Compliance objectives focus on adhering to laws and regulations.

What are the Components of Internal Controls?

Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities.

Control Activities:

Control activities include various work responsibilities and duties completed by employees to reduce risks to an acceptable level.

Risk Assessment:

Managers should continuously assess the potential for fraud and other risks that could prevent the company from achieving its objectives.

What are the Objectives of Internal Controls?

Operations, Reporting and Compliance

Operations:

Opperational objectives focus on completing work efficiently and effectively and protecting assets by reducing the risk of fraud.

Monitoring Activities:

The internal control system is evaluated often to determine whether it is working as intended. Deficiencies should be communicated to those responsible for taking corrective action, including senior management and/or the board of directors.