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Lecture Documents Accounting - Internal Control Components
Intro To Accounting (AC 210)
University of Alabama
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INTERNAL CONTROL COMPONENTS
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) introduces the five components of internal control which include the control environment, Risk Assessment, control Activities, Monitoring and Information and communication. Control environment the control environment of the company includes the attitude of management and employees to the importance of existing controls in the organization. One of the factors that influence the control environment is the management philosophy (single management in partnership or joint management in the company) and management operating style (progressive or conservative management), organizational structure (centralized or decentralized) and personal practices. This control environment is very important because it is the basis for the effectiveness of other elements of internal control. Risk assessment all organizations have risks, in any condition the name of risk must exist in an activity, both activities related to business (profit and non-profit) and non-business. A risk that has been identified can be analyzed and evaluated so that it can be estimated the intensity and actions that can minimize it. Identification and analysis of the risks relevant to the achievement of objectives is about determining “how the risk is valued and then managed”. This component should identify both internal and external risks to be assessed later. Before conducting a risk assessment, goals or targets should be determined first and associated in accordance with the levels. Control procedures control procedures are established to standardize work processes so as to ensure
the achievement of company objectives and prevent or detect irregularities and errors. The control procedure includes the following: 1) competent personnel, duty mutation and compulsory leave. 2) delegation of responsibility. 3) separation of responsibilities for related activities. 4) Pemisa han accounting functions, asset storage and operations. Monitoring monitoring of the internal control system will find deficiencies and improve the effectiveness of control. Internal control can be monitored either by means of special assessments or in line with management efforts. The last monitoring effort can be done by observing employee behavior or warning signs given by the accounting system. Specific assessments are usually conducted periodically when there is a major change in senior management strategy, corporate structure or business activities. In large companies, the internal auditor is the person in charge of monitoring the internal control system. Independent auditors also often conduct an assessment of internal controls as part of an audit of the financial statements. Information and Communication Information and communication are important elements of the company's internal control. Information about the control environment, risk assessment, control and monitoring procedures are required by management as operational guidelines and ensure compliance with reporting laws and regulations applicable to the company. Information is also required from outside the company. Management can use this type of information to assess external standards, laws, events and conditions that have an effect on decision-making and external reporting. Information and communication, accommodating the needs of the company in identifying, retrieving, and communicating information to the appropriate parties so that they
Lecture Documents Accounting - Internal Control Components
Course: Intro To Accounting (AC 210)
University: University of Alabama
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