Question

What are “internal controls”? Who establishes the controls? What role does management play in the
creation and maintenance of a control environment?
What do we mean by:
 “Segregation of duties”?
 “Tone at the top”?
 “Compensating controls”?
 “IT general controls”?
 “IT application controls”?
Provide examples of at least five internal controls and describe how they function within an organization;
that is, how they help to ensure the integrity of the data produced by the company’s accounting
systems/processes.

Answer 1

Internal Controls are procedures and policies set by the managment of an entity to ensure that the intergrity of financial and accounting information and prevent fraud.It aims to improve operational efficiency by improving the accuracy and timeliness of finanacial reporting. It also ensures that all law, regulations and compliances are followed and met with .
The managment of the business establishes the controls. The management must consistenly apply the control standards to ensure that the objecitves of internal control are met and must assess internal control effectivness
The must provide assurances on internal control in the performance and accountabilty report along with seperate assurances on internal control over financial reporting along with material weakness and corrective actions

Segregation of Duties : Allocating duites to different persons in such a way that no one person can complete a transaction without complimenting to the work of the other person . Thus a transaction cannot be completed from start to finish by one person

Tone at the top means the company management and directors leadership, direction and commitment to being honest and ethical to set an example and lead  the corporate values and cultural enviroment

Compensating Controls are internal controls which must meet the specfic requirements set for prevention of attacks and safety example  a single employee has the duites of accepting cash and recording deposit an addtional oversight is needed which acts like a control

IT general controls are controls applied to all systems processess and data for a given organization or IT envoirment

IT applicable controls are controls that vary on the business purpose of the specific application and are fully automated to ensure accuracy and completeness in processing data via input output

Five internal controls examples and how they they function within an organization are

1) Bank Reconciliations helps in identifying bank and accoounting errors and provides explanation of the difference between betwwen bank records and company cash records

2 )Segregation of Duties Allocating duites to different persons in such a way that no one person can complete a transaction without complimenting to the work of the other person . Thus a transaction cannot be completed from start to finish by one person

3) Organize count inspect and account for all movement of stocks and assets to proctect against theft and waste by maintaining adqueate records and registers and doing regular physical checks

4)Having thrid party reveiw / audit purchase , financial records, time sheets , inventory registers, expense reimbusrements which will help in spot errors, frauds and irregualarites

5)Authuorization of expenses , invoices by correct authority and limiting physical access to inventory cash and other assests