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

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What is COSO?

Who are the sponsors?

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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.”

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¨ 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.

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Components Of Internal Control

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

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17 Principles

Source: Deloitte

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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.

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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.

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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.

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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.

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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.

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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

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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.

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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.

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Limitations of Internal Control

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

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End of COSO Presentation

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Types of Controls

¨ Preventive¨ Detective¨ Corrective¨ Directive

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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

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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

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Corrective Controls

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

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

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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.