Internal Control Consideration
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Transcript of Internal Control Consideration
Vierna Suryaningsih, SE. Akt., BAP., CIA
May 2012Internal Control Consideration
Agenda
• Thought flow• Understanding the internal control concept• Internal control assessment
Page 2
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 3
What we learn today
Thought flow
Communication with previous
auditor
Understanding client’s business
and risks
Fraud risk and legal risk
assessment
Perform the analytical review
Internal control assessment
Determine audit nature, scope
and timing
Understanding the internal control concept
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 4
Definition of internal control
• Control activities performed by internal parties within entities to ensure the accomplishment of the following objectives:- Financial reporting reliability- Operating effectiveness and efficiency- Compliance to the prevailing laws and regulations
Understanding the internal control concept
Consider the internal control
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 5
Five components
• Control environment
• Risk assessment
• Control activities
• Information and Communication
• Monitoring
Understanding the internal control concept
Consider the internal control
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 6
Internal control limitations
• Management overrides of controls
• Collusion
• Cost of controls
• Contra-productive corporate governance system / company culture
Understanding the internal control concept
Consider the internal control
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 7
Assessing Internal Auditor (IA) functions
• IA Independency and objectivity
• Scope of internal audit review
• Reviewing IA works (including working paper)
• Communication with IA
Internal control assessment
Consider the internal control
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 8
Internal control assessment
Consider the internal control
Internal Auditor Public Accountant
Completeness Completeness
Accuracy Accuracy
Validity Valuation
Restricted Access Existence and Occurrence
Rights and Obligations
Presentation and Disclosure
Cut Off
Reclassification
IA vs Public Accountant assertions
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 9
Group Discussion – Part 1
• Read the brief procedures on area assigned to your group• Discuss within your group the internal control activities performed• Determine whether there are weaknesses on the internal control
Deliverables:• List of internal control activities• List of internal control weaknesses
Assigned time: 20 minutes
Internal control assessment
Consider the internal control
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Consider the internal control
Page 10
Applied internal control, does it adequate?
• Review the internal control implementation- The design – does it adequate? Cost of control?- The implementation – does it effective?
• Next step: create the audit procedures
Internal control assessment
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 11
Create the audit procedures
• The adequacy of the internal control defines the depth of audit procedures performed
Internal control assessment
Consider the internal control
Defines the audit procedures
Test of control
Adequate?Ignore the
internal control
In-depth audit
procedure
More substantive
testTest of detail
controlEffective?
Less substantive
test
No
No
Yes
Yes
Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business
Page 12
Group discussion – Part 2
• Assess the audit risk for area assigned to each group• Combined the identified audit risks with the result of your first group discussion and prepare the audit procedures for each respective area
Deliverables:Audit procedures for each respective area
Assigned time: 25 minutes
Internal control assessment
Consider the internal control
Defines the audit procedures
Vierna Suryaningsih, SE. Akt., BAP., CIA
Thank you