Introduction to Internal Control Systems
Controls that specifically encourage operating efficiency are often called preventive
Controls that attempt to safeguard asset resources are often called detective
For a specific internal control to be effective, both the preventive and the detective
aspect of the control must exist and be interrelated.
Preventive and corrective controls are established solely to discourage fraud and
embezzlement by an organization's employees.
A good internal control system will contribute towards detecting accidental errors
made by employees.
An organization should always attempt to implement ideal controls into its system.
It is normally considered good organizational design to establish the internal audit
function within the accounting subsystem.
The introduction of a computer into an organization's data processing system will
normally eliminate problems associated with following the organization's audit trail.
A good audit trail is an important element within a company's internal control
An audit trail problem associated with computerized data processing is that certain
financial data processed by the computer may never be seen by the company's
Operational audits are performed by a company’s internal audit staff.
The separation of duties control would
be violated if a company's cashier was
also responsible for recording cash transactions.
The separation of duties control does
eliminate completely the possibility of
embezzlement by employees.
The personnel subsystem has the important function of matching job qualifications
to people qualifications.
The COSO report failed to define internal control.
An effective approach for maintaining a good audit trail for cash disbursements is to
utilize a voucher system with coins and currency issued for each disbursement.
COBIT extensively examined the internal control area.
Risk assessment is an important component of an internal control system.
A company’s control environment is unimportant when developing an internal control
Timely performance reports contribute towards achieving the monitoring component
of an internal control system.
Control activities and monitoring are one and the same.
The Basle Committee published a framework for the evaluation of internal control
systems in banking organizations.
Three objectives of a company's internal control system should be safeguarding
assets, checking the accuracy and reliability of accounting data, and promoting
A fourth objective of a company's internal control system
Preventing embezzlement of assets
Encouraging adherence to prescribed managerial policies
Avoiding the payment of overtime to company employees
Revising standards for production costs on a weekly basis
The control environment is a component of a company's internal control system that:
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