Evaluation of Internal Controls
COSO defines internal control as, “a process, influenced by an entity’s board of directors, management, and other personnel, that is designed to provide reasonable assurance in the effectiveness and efficiency of operations, reliability of financial reporting, and the compliance of applicable laws and regulations”. The auditor evaluates the organization’s control structure by understanding the organization’s five interrelated control components. They include:
- Control Environment Provides the foundation for the other components. Encompasses such factors as management’s philosophy and operating style.
- Risk Assessment Consists of risk identification and analysis.
- Control Activities Consists of the policies and procedures that ensure employees carry out management’s directions. Types of control activities an organization must implement are preventative controls (controls intended to stop an error from occurring), detective controls (controls intended to detect if an error has occurred), and mitigating controls (control activities that can mitigate the risks associated with a key control not operating effectively).
- Information and Communication Ensures the organization obtains pertinent information, and then communicates it throughout the organization.
- Monitoring Reviewing the output generated by control activities and conducting special evaluations.
In addition to understanding the organization’s control components, the auditor must also evaluate the organization’s General and Application controls. there are three audit risk componenets which are control risk, detection risk and inherent risk.
Read more about this topic: Information Technology Audit Process
Famous quotes containing the words evaluation of, evaluation, internal and/or controls:
“Good critical writing is measured by the perception and evaluation of the subject; bad critical writing by the necessity of maintaining the professional standing of the critic.”
—Raymond Chandler (1888–1959)
“Good critical writing is measured by the perception and evaluation of the subject; bad critical writing by the necessity of maintaining the professional standing of the critic.”
—Raymond Chandler (1888–1959)
“I have been amazed by the Anglo-Saxon’s lack of curiosity about the internal lives and emotions of the Negroes, and for that matter, any non-Anglo-Saxon peoples within our borders, above the class of unskilled labor.”
—Zora Neale Hurston (1891–1960)
“Comparatively, we can excuse any offense against the heart, but not against the imagination. The imagination knows—nothing escapes its glance from out its eyry—and it controls the breast.”
—Henry David Thoreau (1817–1862)