prepared by wa'el bibi,cpa,cia,cisa1 internal control integrated framework an overview.. bibi...

1Prepared by

Wa'el Bibi,CPA,CIA,CISA

Internal Control Integrated Framework

An Overview..

Bibi Consulting

COSO’s

Source: COSO’s Internal Control Integrated Framework

www.bibiconsulting.com

Prepared by Wa'el Bibi,CPA,CIA,CISA

2

What is COSO?

Who are the sponsors?

Prepared by Wa'el Bibi,CPA,CIA,CISA

3

What Is Internal Control ?

“A process effected by an entity’s board of directors,management and other personnel,designed to provide reasonable assurance regarding the achievements of objectives in the following categories:

¨ Effectiveness & efficiency of operations.¨ Reliability of financial reporting.¨ Compliance with applicable laws and regulations.”

Prepared by Wa'el Bibi,CPA,CIA,CISA

4

¨ Internal control is a process. It is a means to an end, not an end in itself.

¨ Internal control is effected by people. It’s not merely policy manuals and forms, but people at every level of an organization.

¨ Internal control can be expected to provide only reasonable assurance, not absolute assurance, to an entity’s management and board.

¨ Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.

Prepared by Wa'el Bibi,CPA,CIA,CISA

5

Components Of Internal Control

¨ Control Environment.¨ Risk Assessment.¨ Control Activities.¨ Information & Communication.¨ Monitoring.

Prepared by Wa'el Bibi,CPA,CIA,CISA

6

Prepared by Wa'el Bibi,CPA,CIA,CISA

7

17 Principles

Source: Deloitte

Prepared by Wa'el Bibi,CPA,CIA,CISA

8

Control Environment¨ Sets the tone of the organization.¨ The foundation for all other

components.¨ It includes the integrity, ethical values

and competence of the people.¨ Reflects: management’s philosophy &

operating style, the way management assigns authority and responsibility and organizes and develops its people, and the attention and direction provided by the board of directors.

9Prepared by

Wa'el Bibi,CPA,CIA,CISA

Risk Assessment¨ Every entity faces internal

&external risks.¨ Every entity sets objectives.¨ Risk assessment is the

identification and analysis of relevant risks to achievements of the objectives.

Prepared by Wa'el Bibi,CPA,CIA,CISA

10

Control Activities¨ The policies and procedures that help

ensure management directives are carried out.

¨ They help ensure that necessary actions are taken to address risks.

¨ Control activities occur throughout the entity at all levels and in all functions.

¨ They include activities such as approvals , authorization, reconciliations and segregation of duties.

Prepared by Wa'el Bibi,CPA,CIA,CISA

11

Information & Communication¨ Relevant information must be identified ,

captured and communicated in a form & timeframe that enables people to carry out their responsibilities.

¨ Information systems produce reports containing operational, financial and compliance –related information that make it possible to run and control the business.

¨ Effective communication must occur in a broader sense, flowing down, across and up the organization.

12Prepared by

Wa'el Bibi,CPA,CIA,CISA

Monitoring¨ Internal control systems need to

be monitored.¨ Types of monitoring:

- ongoing during the course of operations.

- evaluation for which the scope and frequency will depend primarily on an assessment of risks and the effectiveness of ongoing monitoring procedures.

Prepared by Wa'el Bibi,CPA,CIA,CISA

13

Responsibilities

Who is responsible for internal control ?

Everyone !

Board of Directors :Governance,guidance & oversight

Management : CEO is the owner

Internal Auditors: evaluate & monitor

Other personnel :information and communication

Prepared by Wa'el Bibi,CPA,CIA,CISA

14

What Internal Control Can Do

¨ It can help achieve performance & profitability targets.

¨ It can help prevent loss of resources.¨ It can help ensure reliable financial reporting.¨ It can help ensure compliance with laws.

It can help an entity get to where it wants to go,and avoid pitfalls and surprises along the

way.

Prepared by Wa'el Bibi,CPA,CIA,CISA

15

What Internal Control Cannot Do

¨ It cannot ensure success.¨ It cannot ensure the reliability of financial

reporting.¨ It cannot ensure compliance with laws and

regulations.

Internal controls ,no matter how well designed and operated,can provide only reasonable assurance to management regarding achievements of an entity’s

objectives.

Prepared by Wa'el Bibi,CPA,CIA,CISA

16

Limitations of Internal Control

¨ Judgement.¨ Breakdowns.¨ Management override.¨ Collusion.¨ Costs Versus Benefits.

Prepared by Wa'el Bibi,CPA,CIA,CISA

17

End of COSO Presentation

Prepared by Wa'el Bibi,CPA,CIA,CISA

18

Types of Controls

¨ Preventive¨ Detective¨ Corrective¨ Directive

Prepared by Wa'el Bibi,CPA,CIA,CISA

19

Preventive Controls

¨ Are designed to discourage errors or irregularities from occurring.

¨ They are more cost-effective than detective controls.

¨ Examples:

- Segregation of duties

- Authorization

- Firewalls

- Passwords

Prepared by Wa'el Bibi,CPA,CIA,CISA

20

Detective Controls¨ Are designed to search for and identify errors after

they have occurred.¨ They are more expensive than preventive controls

.¨ Examples:- Reconcilaitions- Analysis - Periodic Inventory- Surveillance cameras- Audit

Prepared by Wa'el Bibi,CPA,CIA,CISA

21

Corrective Controls

¨ corrective controls are designed to restore a system to an approved/last known good state.

¨ Examples:- Anti Virus software.- Adjusting entries.

Prepared by Wa'el Bibi,CPA,CIA,CISA

22

Directive Controls

¨ Are designed to provide direction from management. (Actions taken to cause or encourage a desirable event to occur). 

¨ Examples:- Job Description- Training- Policies and procedures.