Page 55 - DCOM509_ADVANCED_AUDITING

Advanced Auditing Pooja, Lovely Professional University

Notes Unit 4: Internal Control

CONTENTS
Objectives
Introduction

4.1 Process of Internal Control
4.2 Types of Internal Control
4.3 Characteristics of an Effective Control System

4.4 Internal Control Process
4.4.1 Control Environment
4.4.2 Importance of Internal Control
4.5 Basic principles governing Internal Control
4.6 Internal Auditing

4.7 Internal Check
4.8 Inherent Limitations of Internal Control
4.9 Summary

4.10 Keywords
4.11 Review Questions
4.12 Further Readings

Objectives

After studying this unit, you will be able to:

 Define and discuss meaning of internal control
 State the importance of internal control
 Describe internal checking

Introduction

The management style and the expectations of upper-level managers, particularly their control
policies, determine the control environment. An effective control environment helps ensure
that established policies and procedures are followed. The control environment includes
independent oversight provided by a board of directors and, in publicly held companies, by an
audit committee; management’s integrity, ethical values, and philosophy; a defined
organizational structure with competent and trustworthy employees; and the assignment of
authority and responsibility.

Control activities are the specific policies and procedures management uses to achieve its
objectives. The most important control activities involve segregation of duties, proper
authorization of transactions and activities, adequate documents and records, physical control
over assets and records, and independent checks on performance.

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