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Ebook Foundation exam financial accounting and reporting: Part 2

Part 2 book “Foundation exam financial accounting and reporting” has contents: Financial statements, application of specific accounting standards, business combinations, analysis of financial statements. | FINANCIAL ACCOUNTING AND REPORTING | 177 8 INTERNAL CONTROL AND THE ROLE OF THE INTERNAL AND EXTERNAL AUDITORS Section overview An entity will implement controls to ensure that financial statements and underlying accounting records are complete and accurate. Internal auditors will have a role in this. The external audit is a type of assurance engagement carried out by an external auditor to provide an independent opinion on the truth and fairness of an entity's financial statements. 8.1 Internal control Definition Internal control is the process designed, implemented and maintained by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of an entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. report reliably operate efficiently comply with legal requirements keep its assets secure from theft or damage Internal control has five elements: the control environment the entity's risk assessment process the information system relevant to financial reporting control activities monitoring of controls Let's look at two of these in more detail – the information system relevant to financial reporting and control activities as these relate directly to the financial statements. Definition The information system relevant to financial reporting is a component of internal control that includes the financial reporting system, and consists of the procedures and records established to initiate, record, process and report entity transactions and to maintain accountability for the related assets, liabilities and equity. The information system relevant to financial reporting includes the following: the classes of transactions in the entity's operations that are significant to the financial statements the procedures, within both IT and manual systems, by which those transactions .