Question

describe the 5 internal contros and give examples how managers used them on business

Components of Internal Control aControl Environment Risk Assessment Control Activities lnformation and Communication Monitoring

Answer 1

As per aisc 315 for identification and assessment of material misstatement audit risk to understand the entity and its environment through gaining understanding of its internal control system of an organisation the process of understanding internal control involves five components of internal control system.

1.Control environment: the first component takes into consideration the mindset, attitude, and procedures being followed by persons responsible for formation and monitoring of internal control.
Evidences are collected for control environment through inspection and observations largely.

2.Risk assessment: the auditor analysis the risk assessment process formed by the management of the organisation to identify the risk.
The risk assessment process varies from organisation to organisation due to nature, size and complexity of entity. Effective and efficient risk assessment procedure reduces the risk to its lowest.

3.Control activities: it includes the steps taken by the management to follow procedure or policies which are designed to execute a transaction. It may include authorisation, physical controls, segregation of duties throughout the entity.

4.Information and communication: information system consists of all the procedures found by the organisation for the purpose of

• Maintaining accountability for transaction assets and liabilities.
• Appropriate disclosure of required information.
• Processing and reporting of transactions etc.

5.monitoring: it is a process to be continuously followed after the implementation of internal control system to ascertain its effectiveness and to update these controls monitoring can be done continuously on regular intervals and it is certainly the key role of internal auditor of the entity to monitor the internal control system.