BusinessAllstars.com 1 BusinessAllstars.com Presents Copyright © 2004 by Gainbridge Associates All right reserved This material may not be used or reproduced.

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BusinessAllstars.comBusinessAllstars.comPresentsPresents

Copyright © 2004 by Gainbridge AssociatesCopyright © 2004 by Gainbridge AssociatesAll right reservedAll right reserved

This material may not be used or reproducedThis material may not be used or reproducedwithout permission of Gainbridge Associateswithout permission of Gainbridge Associates

INTERNALINTERNALCONTROLSCONTROLS


Internal Controls areInternal Controls are

The policies and procedures The policies and procedures management utilizes management utilizes

to to protect assetsprotect assets and and

assure that recordsassure that records

are accurate and reliable.are accurate and reliable.


A – Control Environment A – Control Environment

Board of directors or Audit Board of directors or Audit CommitteeCommittee

Management’s philosophy Management’s philosophy and operating styleand operating style

Organizational structureOrganizational structureAssignment of authority Assignment of authority

and responsibilityand responsibilityHuman resource policies Human resource policies

and practicesand practices

Integrity,Integrity,Ethical Values,Ethical Values,

and and Commitment to Commitment to

CompetenceCompetence must be present must be present

at all levels:at all levels:


B – Risk Assessment B – Risk Assessment

A concerted effort must be made to:A concerted effort must be made to:

Identify factorsIdentify factors affecting risks affecting risks

Assess significanceAssess significance of risks and of risks and likelihood of occurrencelikelihood of occurrence

Determine Determine actions necessaryactions necessary to to manage risksmanage risks


C - Control ActivitiesC - Control Activities

1- Hire honest, competent employees trained for their task.1- Hire honest, competent employees trained for their task.

2- Bond employees against potential loss.2- Bond employees against potential loss.



3- Separation of duties3- Separation of duties

4- Require vacations and rotate 4- Require vacations and rotate employees. employees.

Authorization CustodyRecording



5- Proper authorization of 5- Proper authorization of transactions and activitiestransactions and activities

6- Procedures 6- Procedures Manuals Manuals

7- Pre-numbered7- Pre-numbered sequential sequential documentsdocuments

2438224383

2438424385

2438624387



8- Safeguard all physical 8- Safeguard all physical assets and their related assets and their related

recordsrecords

9- Independent check on 9- Independent check on performanceperformance


D – Information & Communication D – Information & Communication

Records will be checked for:Records will be checked for:

AAccuracyccuracy

CCompletenessompleteness

CClassificationlassification

EExistencexistence

PPosting and osting and summarizationsummarization

TTimingiming A C C E P T


E - Monitoring E - Monitoring

1.1. Data is subject to Data is subject to edit checksedit checks and matched to and matched to approved control files.approved control files.

2.2. Transactions are accounted for in Transactions are accounted for in numeric numeric sequence. sequence.

3.3. File File totals are comparedtotals are compared with control accounts. with control accounts.

4.4. Exceptions are examinedExceptions are examined and acted upon. and acted upon.

5.5. AccessAccess is granted to only is granted to only authorized authorized individuals.individuals.


Procedures for TestingProcedures for Testing Internal ControlsInternal Controls

Make Make InquiriesInquiries of Appropriate personnel of Appropriate personnel

ExamineExamine Documents, Records, and Documents, Records, and ReportsReports

ObserveObserve Control-Related Activities Control-Related Activities

Re-performRe-perform Procedures Procedures


Management Management Assessment ProcessAssessment Process

http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf


Auditor’s Auditor’s responsibilitiesresponsibilities in the in the

Audit of Internal Audit of Internal Control over Control over

Financial ReportingFinancial Reporting

http://www.kpmg.de/library/pdf/http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf040413_SOX404_PCAOB_Requirements_en.pdf


Taking the long view = ValueTaking the long view = Value

http://www.kpmg.de/library/pdf/040413_SOX404_PCAOB_Requirements_en.pdf


Management Report is required to includeManagement Report is required to include

1. A statement of 1. A statement of management’s management’s responsibilityresponsibility for establishing and for establishing and maintaining adequate internal control maintaining adequate internal control over financial reporting for the over financial reporting for the companycompany



2. A statement identifying the 2. A statement identifying the framework usedframework used by management to by management to conduct the required assessment of conduct the required assessment of the effectiveness of the company’s the effectiveness of the company’s internal controls over financial internal controls over financial statementsstatements



3. An assessment of the 3. An assessment of the effectivenesseffectiveness of the company’s internal controls of the company’s internal controls over financial reporting as of the end over financial reporting as of the end of the company’s most recent fiscal of the company’s most recent fiscal year, including an explicit statement year, including an explicit statement as to whether the internal controls as to whether the internal controls over financial reporting is effective.over financial reporting is effective.



4. A statement that the registered 4. A statement that the registered public accounting firmpublic accounting firm that audited the that audited the financial statements included in the financial statements included in the annual report has issued an annual report has issued an attestation reportattestation report on management’s on management’s assessment of the company’s internal assessment of the company’s internal controls over financial reporting.controls over financial reporting.

BusinessAllstars.com 1 BusinessAllstars.com Presents Copyright © 2004 by Gainbridge Associates All right reserved This material may not be used or reproduced.

Documents

control accounts

control files

c control activities1

audit of internal control

adequate internal control

combusin control activities8

procedures management

management report