For FM-E3

1. INTERNAL CONTROL

2. WHAT INTERNAL CONTROL IS NOT
* internal control is NOT internal audit
* internal control is NOT about fault finding
* internal control is NOT about fraud
prevention or detection alone

3. INTERNAL CONTROL
-comprises the plan of organization & all the
coordinate methods & measures adopted within a
business to safeguard its assets, check the
accuracy & reliability of its accounting data,
promote operational efficiency, & to encourage
adherence to prescribed managerial policies.
-aids the BOD and Management in performing their
functions of directing the activities of the firm
efficiently and effectively, and makes possible the
prevention or prompt detection of fraud, waste and
errors

4. INTERNAL CONTROL
- a process, put in place by people, that is designed
to provide reasonable assurance that the following
objectives are achieved
*effectiveness and efficiency of operations
*reliability of financial reporting
*compliance with law and regulations
*perform risk assessment
*implement control activities
*monitor performance

5. FOUNDATION OF SOUND INTERNAL CONTROL
*control consciousness
*tone at the top-- an ethical (or unethical) atmosphere in the
workplace
-is a term that originated in the field of accounting and is used
to describe an organization's general ethical climate, as
established by its board of directors, audit committee, and
senior management. Having a strong tone at the top is believed
by business ethics experts to help prevent fraud and other
unethical practices.
*ethics-set of moral principles
*integrity-decency, honesty
*accountability-willingness to accept responsibility

6. CONTROL ACTIVITIES- actions
designed to manage risks
TYPES OF CONTROL
*PREVENTIVE
*DETECTIVE

7. GOOD CONTROL IS GOOD
BUSINESS

8. *RESOURCES
-controller (performs as the management
accountant)
-auditor (person authorized to examine
and verify accounts)
-colleagues

9. GOOD PEOPLE CAN MAKE A BAD
SYSTEM WORK, WHILE BAD
PEOPLE CAN MAKE THE BEST
SYSTEM FAIL

10. *Controls should be proactive,
value-added and cost effective
*Cost of control should not exceed
the benefit derived from it

11. SOME PRINCIPLES OF INTERNAL CONTROL
*authority must accompany responsibility
*responsibility must be fixed
*there should be separation of physical custodianship from
record keeping
*no one person should be in complete charge of a transaction
*employees should be properly selected and trained
*operating instructions for each position must be reduced to
writing
*functions should be divided and subdivided as much as is
reasonable and practicable to provide internal check.

12. ELEMENTS OF INTERNAL CONTROL
*organizational structure
*procedures
*physical and mechanical facilities
*accounting and other records
*reports
*standards of performance
*internal audit

13. INTERNAL CONTROL PROCESSES
*internal control documentation
*control activity monitoring
*control evaluation
*exception reporting
*remediation

14. INTERNAL AUDIT
*internal auditing is an independent appraisal activity
within an organization for the review of operations as a
basis for service to the Board of Directors and
Management
*it is a control that functions by measuring and
evaluating the effectiveness of other controls
*to verify if appropriate ongoing controls are in place
and functioning correctly and to evaluate operational
processes to determine whether they are in
accordance with the objectives and purposes of the
company as defined by the business policy determined
by the BOD

15. INDEPENDENCE OF THE INTERNAL
AUDITOR
*internal auditor shall report directly to the
BOD or to an audit committee composed
of directors who do not hold executive
positions in the company.
*internal auditor shall not install nor
develop procedures, prepare records or
engage in other activities, which he
normally reviews or appraises.