The learning objectives for this chapter include: Define and describe internal control and explain the limitations of all internal control systems, distinguish between the responsibilities of management and auditors regarding an entity’s internal control, define and describe the five basic components of internal control and specify some of their characteristics. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 05 Risk Assessment: Internal Control Evaluation “Bernie doesn’t want you to use the words “internal controls” in any more of your audit reports it aggravates him. ” -- Cynthia Cooper referring to advice given her by a colleague on how to best deal with Bernie Ebbers, the then CEO of WorldCom right before she uncovered an $11 Billion dollar fraud that Ebbers directed. 5- Learning Objectives Define and describe internal control and explain the limitations of all internal control systems. Distinguish between the responsibilities of management and auditors regarding an entity’s internal control. Define and describe the five basic components of internal control and specify some of their characteristics. Explain the process the audit team uses to assess control risk, understand its impact on the risk of material misstatement, and, ultimately, to know how it affects the nature, timing, and extent of substantive testing to be performed on the audit. 5- Learning Objectives (cont.) Describe additional responsibilities for management and auditors of public companies required by Sarbanes-Oxley and Auditing Standard No. 5. List the major components of the auditors’ report on internal control over financial reporting. Describe situations in which the auditors’ report on internal control over financial reporting would be modified. Explain the communication of internal control deficiencies to those charged with governance such as the audit committee and other key management personnel. 5- Internal Control Defined Internal control is a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following three categories: Reliability of financial reporting Effectiveness and efficiency of operations Compliance with applicable laws and regulations . | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 05 Risk Assessment: Internal Control Evaluation “Bernie doesn’t want you to use the words “internal controls” in any more of your audit reports it aggravates him. ” -- Cynthia Cooper referring to advice given her by a colleague on how to best deal with Bernie Ebbers, the then CEO of WorldCom right before she uncovered an $11 Billion dollar fraud that Ebbers directed. 5- Learning Objectives Define and describe internal control and explain the limitations of all internal control systems. Distinguish between the responsibilities of management and auditors regarding an entity’s internal control. Define and describe the five basic components of internal control and specify some of their characteristics. Explain the process the audit team uses to assess control risk, understand its impact on the risk of material misstatement, and, ultimately, to know how it affects the nature, .
