internal control consideration

Vierna Suryaningsih, SE. Akt., BAP., CIA

May 2012Internal Control Consideration

Agenda

• Thought flow• Understanding the internal control concept• Internal control assessment

Vierna Suryaningsih, SE. Akt, BAP., CIAUnderstanding Client’s Business

What we learn today

Thought flow

Communication with previous

auditor

Understanding client’s business

and risks

Fraud risk and legal risk

assessment

Perform the analytical review

Internal control assessment

Determine audit nature, scope

and timing

Understanding the internal control concept


Definition of internal control

• Control activities performed by internal parties within entities to ensure the accomplishment of the following objectives:- Financial reporting reliability- Operating effectiveness and efficiency- Compliance to the prevailing laws and regulations


Consider the internal control


Five components

• Control environment

• Risk assessment

• Control activities

• Information and Communication

• Monitoring




Internal control limitations

• Management overrides of controls

• Collusion

• Cost of controls

• Contra-productive corporate governance system / company culture




Assessing Internal Auditor (IA) functions

• IA Independency and objectivity

• Scope of internal audit review

• Reviewing IA works (including working paper)

• Communication with IA






Internal Auditor Public Accountant

Completeness Completeness

Accuracy Accuracy

Validity Valuation

Restricted Access Existence and Occurrence

Rights and Obligations

Presentation and Disclosure

Cut Off

Reclassification

IA vs Public Accountant assertions


Group Discussion – Part 1

• Read the brief procedures on area assigned to your group• Discuss within your group the internal control activities performed• Determine whether there are weaknesses on the internal control

Deliverables:• List of internal control activities• List of internal control weaknesses

Assigned time: 20 minutes





Applied internal control, does it adequate?

• Review the internal control implementation- The design – does it adequate? Cost of control?- The implementation – does it effective?

• Next step: create the audit procedures



Create the audit procedures

• The adequacy of the internal control defines the depth of audit procedures performed



Defines the audit procedures

Test of control

Adequate?Ignore the

internal control

In-depth audit

procedure

More substantive

testTest of detail

controlEffective?

Less substantive

test

No

No

Yes

Yes


Group discussion – Part 2

• Assess the audit risk for area assigned to each group• Combined the identified audit risks with the result of your first group discussion and prepare the audit procedures for each respective area

Deliverables:Audit procedures for each respective area

Assigned time: 25 minutes



Defines the audit procedures

Vierna Suryaningsih, SE. Akt., BAP., CIA

Thank you

internal control consideration

Documents