Charin INTERNAL CONTROL

• Internal control


  The process designed and effected by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of the entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations
• Objectives of internal control

  • Reliability of the entity's financial reporting
  • Effectiveness and efficiency of operations
  • Compliance with applicable laws and regulations
• Internal control system


  All the policies and procedures (internal controls) adopted by the management of an entity to assist in achieving management's objective of ensuring, as far as practicable, the orderly and efficient conduct of its business, including adherence to management policies, the safeguarding of assets, the prevention and detection of fraud and error, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information
• Elements of internal control

  • The control environment
  • The entity's risk assessment process
  • The information system, including the related business processes, relevant to financial reporting, and communication
  • Control activities
  • Monitoring of controls
• Control environment


  The overall attitude, awareness and actions of directors and management regarding the internal control system and its importance in the entity
• Factors reflected in the control environment

  • The function of the board of directors and its committees
  • Management's philosophy and operating style
  • The entity's organizational structure and methods of assigning authority and responsibility
  • Management's control system including the internal audit function, personnel policies and procedures and segregation of duties
• Communication and enforcement of integrity and ethical values


  Integrity and ethical values are essential elements of the internal control environment. They affect the design, administration, and monitoring of other components of internal control. An entity's ethical and behavioral standards and the manner in which it communicates and reinforces them determine the entity's integrity and ethical behavior.
• Commitment to competence


  Competence is the knowledge and skills necessary to accomplish tasks that define an employee's job. Commitment to competence means that management considers the competence levels for particular jobs in determining the skills and knowledge required of each employee and that it hires employees competent to perform the tasks.
• Participation by those charged with governance


  An entity's control consciousness is influenced significantly by those charged with governance. Attributes of those charged with governance include independence from management, their experience and stature, the extent of their involvement and scrutiny of activities, the appropriateness of their actions, the information they receive, the degree to which difficult questions are raised and pursued with management, and their interaction with internal and external auditors.
• Management's philosophy and operating style


  This refers to management's attitude towards (a) business risk, (b)financial reporting, (c) meeting budget, profit and other established goals which all have impact on the reliability of the financial statements.
• Organizational structure


  The responsibilities and authorities of the various personnel within the organization should be established in such a manner as to (1) assist the entity in meeting its goals and objectives and (2) ensure that transactions are processed, recorded, summarized and reported in an accurate and timely manner.
• Assignment of authority and responsibility


  Personnel within an organization need to have a clear understanding of their responsibilities and the rules and regulations that govern their actions.
• Human resources policies and procedures


  Perhaps the most important element of an internal accounting control system is the people who perform and execute the established policies and procedures. Personnel policies should be adopted by the client to reasonably ensure that only capable and honest persons are hired and retained.
• Entity's risk assessment process


  The entity's process for identifying and responding to business risks and the results thereof.
• Risks that can arise or change

  • Changes in operating environment
  • New personnel
  • New or revamped information systems
  • Rapid growth
  • New technology
  • New business models, products, or activities
  • Corporate restructurings
  • Expanded foreign operations
  • New accounting pronouncements
• Information system, including the business processes, relevant to financial reporting and communication


  The procedures and records designed and established to initiate, record, process, and report entity transactions (as well as events and conditions) and to maintain accountability for the related assets, liabilities, and equity.
• Components of the information system relevant to financial reporting


  • Initiate, record, process, and report entity transactions (as well as events and conditions) and to maintain accountability for the related assets, liabilities, and equity
  • Resolve incorrect processing of transactions
  • Process and account for system overrides or bypasses to controls
  • Transfer information from transaction processing systems to the general ledger
  • Capture information relevant to financial reporting for events and conditions other than transactions
  • Ensure information required to be disclosed by the applicable financial reporting framework is accumulated, recorded, processed, summarized and appropriately reported in the financial statements
• Major categories of control procedures

  • Performance review
  • Information processing controls
  • Physical controls
• Monitoring of controls


  The process that an entity uses to assess the quality of internal control over time. Monitoring involves assessing the design and operation of controls on a timely basis and taking corrective action as necessary.