ACT1110
Fundamental Concepts of the
Internal Control System
a) Explain the definition of Controls and Internal Control
b) Differentiate roles and responsibilities to Risk Management and
Internal Control System
Learning Objectives
OBJECTIVES CONTROLS
Defined, intended Increase the likelihood of
outcomes achieving objectives
RISKS
Possibility of an event occurring that will have an
impact on the achievement of objectives
GOVERNANCE
Ensure entity effectively and efficiently directs toward
meeting the objectives
Overview
What is control?
Control
Any action taken by management, the board and other parties to
manage risk and increase the likelihood that established objectives
and goals will be achieved.
Direct responsible
Guidance, direction
and oversight
Frontline Personnel –
minimum of what is expected
Auditor– evaluate and
monitor
Definition of Terms
Internal Control
A process effected by an entity’s board of directors, management
and other personnel designed to provide reasonable assurance of
the achievement of objectives.
Definition of Terms
CoCo Internal Control
Framework
- Guidance on Control (commonly
referred to as CoCo based on its
original title Criteria of Control)
- Published by the Canadian
Institute of Chartered
Accountants (CICA)
A person performs a task, guided by an understanding of its purpose (the objective to be achieved) and
supported by capability (information, resources, supplies and skills). The person will need a sense of
commitment to perform the task well over time. The person will monitor his or her performance and the
external environment to learn about how to do the task better and about changes to be made. The same is
true of any team or work group. In any organization of people, the essence of control is purpose,
commitment, capability, and monitoring and learning
Internal Control
Framework
Turnbull Report
- Guidance on Risk Management,
Internal Control and Related
Financial and Business Reporting
- Published by the Financial
Reporting Council (FRC) of the UK
A report which brings together elements of best practice for risk management; prompt boards to consider
how to discharge their responsibilities in relation to the existing and emerging principal risks faced by the
company; reflect sound business practice, whereby risk management and internal control are embedded in
the business process by which a company pursues its objectives; and highlight related reporting
responsibilities.
Internal Control
Framework
Turnbull Report
- The Board should maintain a sound system of internal controls to safeguard
shareholders’ investment and the company’s assets;
- The Board should, at least annually, conduct a review of the effectiveness of
the system of internal control and should report to the shareholders that they
have done so.
- It is the role of Management to implement board policies on risk and control.
In fulfilling its responsibilities, management should (1) identify and evaluate the
risks faced by the company for consideration by the board and (2) design,
operate and monitor a suitable system of internal control which implements the
policies adopted by the board.
Internal Control Framework
COBIT 2019 Framework
- Control Objectives for Information and Related Technology (COBIT)
- Created by ISACA for optimizing enterprise IT governance (to help businesses
develop, organize and implement strategies around information
management)
Effective governance over information and technology is critical to business success, and this new release
further cements COBIT’s continuing role as an important driver of innovation and business transformation
Internal Control Framework
COSO Internal Control – Integrated
Framework 2013
Internal Control Framework
COSO Internal Control – Integrated
Framework 2013
Objectives of Internal Control
- Published by the Committee of Sponsoring
Organizations of the Treadway Commission
(COSO) for determining what constitutes
effective internal control.
- Help organizations design and implement
internal control in light of many changes in
business and operating environments, broaden
the application of internal control in addressing
operations and reporting objectives, and clarify
the requirements
Internal Control
Framework
COSO Internal Control –
Integrated Framework 2013
Objectives of Internal Control
A. Operations
- To achieve entity’s mission
- Safeguard of assets
B. Reporting
- Reliable, timely, and transparent financial
and nonfinancial information
- Prepared for use by the organization and
stakeholders
C. Compliance
- Laws, rules, and regulations that set
minimum standards of conduct
Internal Control Framework
Components and Principles
Control Environment 1. Demonstrates commitment to integrity and ethical values
2. Exercises oversight responsibility
3. Establishes structure, authority and responsibility
4. Demonstrates commitment to competence
5. Enforces accountability
6. Specifies suitable objectives
Risk Assessment
7. Identifies and analyzes risk
8. Assesses fraud risk
9. Identifies and analyzes significant change
10. Selects and develops control activities
Control Activities
11. Selects and develops general controls over technology
12. Deploys through policies and procedures
Information & 13. Uses relevant information
Communication 14. Communicates internally
15. Communicates externally
Monitoring Activities 16. Conducts ongoing and/or separate evaluations
17. Evaluates and communicates deficiencies
Internal Control
Framework
Components and Principles
Control Environment
Internal Control
Framework
Components and Principles
Risk Assessment
Internal Control
Framework
Components and Principles
Control Activities
Internal Control
Framework
Components and Principles
Information &
Communication
Internal Control
Framework
Components and Principles
Monitoring Activities
Internal Control
Framework
Roles and Responsibilities
Questions
Thank you