ACC 544 (Controls for IT and Reporting) Complete Class
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ACC 544 Week 1 Recommendation Brief for an Internal Auditor An internal auditor certifies a company’s financial statements are timely, relevant, and reliable. According to the American Accounting Association (1973), “Auditing is a systematic process of objectivity obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users.� Internal auditing assists a company minimize business risks by satisfying the demand of timely, relevant, and reliable information. The following are four environmental conditions that increase user demand for relevant and reliable information: (1) Complexity, (2) Remoteness, (3) Time sensitivity, and (4) Consequences. Complexity Currently, transactions and events are far more complex, in a way that decision makers and investors do not have the expertise to handle them. However, a professional such as an internal auditor is trained to accumulate, gather, and sum up the crucial operating information on his or her own. An internal auditor has the expertise to break down the complex transactions and events while making that information more understandable for the decision making process. Remoteness Decision makers and potential partners are often separated by distance, time, and a lack of expertise. Depending on the distance and time, investors cannot continually check up on their investments. Often the investor must hire professionals such as internal auditors to do the work for him or her . ACC 544 Week 1 DQs DQ1 Who do you believe is primarily responsible for risk management for an organization? DQ2 What is the primary role of the internal audit department? What is the best placement for the internal audit department in the org chart and why? ACC 544 Week 2 Justification for an Internal Control System
In response to management request for additional information, our team has determined the justification for an internal control system is compelling. Although controls are in place based on the insurance and portfolio risk management approaches, the benefits achieved by implementing an internal control system are greater. A discussion of the validity of both insurance and portfolio approaches is included below along with a definition and description of benefits relating to an internal control system based strategy. Insurance and Portfolio Approach Validity First, one defines the business concept of risk management as the identification, evaluation, and subsequent prioritization of risks followed by effective and efficient resolution activities in order to reduce, monitor, and control the likelihood and/or impact of business events (Raval & Fichadia, 2007). Two strategic means of minimizing identified risks presently used by our company are the insurance and portfolio approaches; each provide a valid solution to managing these risks. Our insurance approach to risk management utilizes specific insurance policies to mitigate risks typical to most organizations such as the safeguarding of assets due to threats of fire, flood, or theft and accident liability. These risks are partially transferred to a third party insurer should an unfortunate event occur protecting us against a much more significant loss. Our portfolio approach of risk management leverages correlation analysis in determining the best means for risks to be optimized or hedged. Risk strategies with positive correlation would be subject to much more volatility than those that are negatively correlated or those with zero correlation. Thus, the company is viewing exposure from a somewhat holistic or comprehensive perspective while aggregating strategic positions by type to achieve an overall balance of risk and return (McCarthy, Flynn, & Brownstein, 2004).
ACC 544 Week 2 DQs Discuss the reasons why the portfolio approach is an effective tool in managing risk. How does insurance manage risk? Explain your answer. ACC 544 Week 3 Internal Control Evaluation Checklist An Introduction to the Evaluation of Internal Controls Internal control is defined as a process designed to provide reasonable assurance regarding the achievement of objectives surrounding effectiveness and efficiency of operations, reliability of reporting, and compliance with applicable rules and regulations (Weygandt, Kieso, & Kimmel, 2008). The main components of an internal control evaluation are:
1.
Defining Internal Controls – This is typically the first phase in a control evaluation where auditors get familiar with how the client defines internal controls in support of scope determination. 2. Team Selection – The proper individuals with appropriate skill sets create conditions for an effective evaluation process. 3. Entity Level Review – This includes a review of the organizational structure and corporate governance at the highest level. This represents the tone at the top. 4. Process, Transaction, and Application Level Review – This represents the detailed internal controls at the process level which tend to be department and company specific. 5. Recommendations – This is the final phase of a control evaluation where effectiveness is determined and recommendations are brought to management. 6. ACC 544 Week 3 DQs What are some major components of an internal control system? Are these components always necessary? Explain your answer. What is the benefit of evaluating an internal control system in phases? Explain your answer. ACC 544 Week 4 Internal Controls for Inflows
Abstract
Revenue cycles are subject to a variety of risks. To address the various risks associated with the inflow of revenue appropriate cash, sales, accounts receivable, inventory, and production internal controls must exist. The Securities and Exchange Commission (SEC) have expressed a variety of concerns related to appropriate recognition of revenue inflows(Louwers, Ramsay, & Strawser, 2007), therefore it is important that each of the inflows listed abovehave effective preventive and detective risk management controls. Below each area of the company’s revenue inflow cycle and recommended controls to mitigate their associated risk is described. Cash Cash, of all assets within an organization is often times the first and primary target of fraud. Because cash is so highly liquid, it is difficult to trace cash-based fraud back to a specific individual or person. Cash controls are also compounded by the fact that it is not easily identifiable company property and is highly portable. As a consequence, controls over cash must be usually strong (Louwers, Ramsay, Sinason, & Strawser, 2007, p. 211).Good internal control begins with appropriate segregation of duties. Proper segregation involves different people and different departments handle the cash disbursement authorization have custody of blank documents (checks), discharge the record keeping for payments, and perform the bank reconciliation (Louwers, Ramsay, Sinason, & Strawser, 2007, p. 214). If checks exceed a pre-determined cap there should more than one signature and in cases of unusually high amounts, the company should consider three more signatures to confirm authorization. It is also important to ensure that cash and blank checks are secure at all times and that access to those items be limited and controlled. As per the discussion of segregation of duties, when the cash accounts are reconciled, it should be accomplished by individuals not involved in those transactions, having an outside party review this account will give a higher level of control and will provide for a better opportunity to detect errors. Combinations of two or more of these responsibilities in one person, one office, or one computerized system can open the door for errors and frauds (Louwers, Ramsay, Sinason, & Strawser, 2007, p. 214). ACC 544 Week 4 DQs What are several conditions that may lead to fraud? To what type of fraud may these conditions lead? Explain the details of a fraud scheme that internal controls cannot impede because of inherent limitations. ACC 544 Week 5 Controls for Outflows Controls for Outflows Businesses conduct transactions by cash inflows and outflows. The outflows of a business will be discussedfurther and how to control the risks that areinvolvedwith different areas. The controls that will be addressed will involve the areas of purchasing, accounts payable, cash disbursements, finance, investments, and payroll. Each area will consider the different transactions that take place and how internal controls can assist in reducing fraud and poor decision making. Purchasing The purchasing department in a company allows a certain amount of power to the employees whowork in that department. Controls need to be in place to prevent fraud and error from occurring. The number of vendors a company purchases goods or supplies from should be limited. Repeat purchases from the same vendors and suppliers will provide routine transactions that are much easier to track and will provide a faster cycle time. Using the same vendors will provide familiarity of the company to the vendor allowing more accurate quantity. When the vendor is familiar with the needs of the company it will reduce fraud and the number of transactions, which will make purchasing goods easier to track. Another control for purchasing is to purchase from online catalogs. Immediate electronic tracking is available and will permit an instant approval or denial of the purchase. When a purchase is approved, the electronic purchase order can be forwardedto accounts payable to prepare for payment. The purchasing and accounts payable departments should work together to provide a smooth flow of transactions while providing backupfor each other. Working together will also prevent any lapse in wait time if organized correctly ACC 544 Week 5 DQs Explain some risks inherent in the acquisition and expenditure cycle. How may these risks be mitigated? Explain some risks inherent in the payroll cycle. How may these risks be mitigated? ACC 544 Week 6 Reporting Options, Evaluation Criteria, and Information Technology Controls
As a broad definition, financial reporting is the means by which a business communicates information about its financial position. Evaluations of this information provides insight regarding a company’s ability to productively useeconomic resources as well as providing a basis for further shareholder assessments of prospective risks and returns. Based on this, one may conclude it is an extraordinarily basic yet important element of financial infrastructure. These evaluations consist of three reports that provide a company options for communicating the state of the internal control structure. The options can be evaluated under established criteria commonly found in Committee of Sponsoring Organizations (COSO), Control Objectives for Information and related Technology (COBIT), and International Organization for Standardization (ISO) 17799/27002 frameworks . Reporting Options The Sarbanes-Oxley Act of 2002 and Accounting Standard 2 require three reports to accompany a business’s financial statements:
1. 2. 3.
An auditor’s report on the financial statements and related disclosures, Management’s report on the company’s internal control over financial reporting, and An auditor’s report on the company’s internal control over financial reporting. The auditor’s report on financial statements and related disclosures is fairly straightforward in that it provides an opinion on whether the company’s presented information was prepared in accordance with generally accepted accounting principles. The management’s report identifies the framework used to assess the effectiveness of internal controls over financial reporting; the specific criteria of each framework are discussed in the following section. The auditor’s report on internal controls over financial reporting provides opinions on the management report as well as another opinion on the effectiveness of internal controls over financial reporting (Louwers, Ramsay, Sinason, & Strawser, 2007). Control Evaluation Criteria – COSO, COBIT, and ISO 17799 (27002) The COSO framework is used to provide reasonable assurance of a company’s achievement of objectives surrounding effectiveness and efficiency of operations, reliability of financial reporting, and compliance with relevant law or regulation. Users can effectively describe and analyze the internal control system implemented in an organization by reviewing the aspects of a business’ control environment, risk assessments, control activities, information systems, and control monitoring activities. The COSO framework’s primary audience is management in that it offers guidance on public reporting of the above listed components. Typically, the control environment can be evaluated through such characteristics as the level of risk management accepts, management attitude over financial reporting, and frequency of communications. Risk assessment controls are evaluated through looking at methods of identifying economic or business environment changes as well as the presence of an accurate analysis of risk significance and likelihood with a corresponding management plan. Control activities evaluations cover policies and procedures, physical controls, segregation of duties, and information system controls. Information systems assessments will review access and application controls. Last, monitoring controls are reviewed by observing the output of regular control activities and by conducting ad hoc evaluations.