Elements - Internal Audit, Auditing and Secretarial Practice Video Lecture | Auditing and Secretarial Practice - B Com

now let's learn more about internal
control it is divided into five
components control environment risk
assessment information system and
communication control activities and
monitoring you can remember this as
crime
so a system of internal control includes
five components to ensure that internal
controls are properly designed now each
component affects the other four
components so it is essential that all
the five components operate together the
auditors responsibility is to obtain an
understanding of these components let us
understand these components
component is the control environment
could see in the bubble next to this it
is considered to be the most important
component of an effective internal
control system but why this is because a
weakness or a deficiency in this
component has a pervasive impact on all
other components control environment
includes attitudes awareness and actions
of Board of Directors and management
regarding the internal control and its
importance it actually describes that
one of individuals at the top of the
organization the next component is the
entity's risk assessment process put R
in the bubble next to this an entity is
a risk assessment process basically
refers to the identification analysis
and management of the risks that are
relevant to the financial reporting this
is something management has to do now
it'll only has to obtain an
understanding of the risk assessment
process the next you have is existing
control activities put in the bubble
this is an obvious element we are
discussing internal control and internal
control obviously includes various
controls or control activities so this
component includes various policies and
procedures that help ensure that
management directives are carried out
for example an entity may have a control
that required two signatures on all
company checks for amount more than
$10,000 this is a control activity next
is in
system and communication put I in the
bubble now the use of information system
and technology for accounting and
reporting is common these days so the
information system is critical component
of internal control now the information
system relevant to financial reporting
include methods used for identifying and
recording all transactions on a timely
basis
this component also includes various
business processes and the communication
of individual roles and responsibilities
pertaining to internal control over
financial reporting the last component
is management's monitoring of controls
put em in the bubble it involves
regularly assessing how effective
internal controls are and taking
remedial actions if required this again
is done by management and the auditor is
only required to obtain an understanding
of the entire process undertaken by
management in its monitoring of controls
so you have a mnemonic crime internal
control is designed to control crime
great way to understand and remember
you
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