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Internal Control Components Overview
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Internal Control Components Overview

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Questions and Answers

What is the first component of internal control?

  • Control Activities
  • Control Environment (correct)
  • Monitoring Activities
  • Risk Assessment

    • Which component involves the ongoing evaluation of internal controls?

  • Information and Communication
  • Risk Assessment
  • Monitoring Activities (correct)
  • Control Activities

    • What is the main purpose of Risk Assessment in internal control?

  • To ensure compliance with laws
  • To report financial statements
  • To identify and analyze risks (correct)
  • To assign tasks to employees

    • Which of the following components is necessary for communication in internal control?

    <p>Information and Communication</p> Signup and view all the answers

    What type of objectives can be included in the flow of organizational objectives?

    <p>Sub-Objectives</p> Signup and view all the answers

    Control Activities are established by what means?

    <p>Policies and procedures</p> Signup and view all the answers

    What does the Control Environment primarily provide?

    <p>A framework of standards and processes</p> Signup and view all the answers

    Which component of internal control helps ensure management directives are carried out?

    <p>Control Activities</p> Signup and view all the answers

    What role does management play in establishing internal controls?

    <p>Management establishes structures and reporting lines with board oversight.</p> Signup and view all the answers

    How does the organization address the risk of fraud?

    <p>By assessing fraud as part of the general risk assessment process.</p> Signup and view all the answers

    What is required for the deployment of control activities?

    <p>Policies that establish expectations and procedures.</p> Signup and view all the answers

    How does the organization manage changes that could impact internal control?

    <p>By identifying and assessing changes that may significantly impact the system.</p> Signup and view all the answers

    What is emphasized in the communication of responsibilities for internal control?

    <p>Prompt communication of deficiencies to relevant parties.</p> Signup and view all the answers

    Who is involved in taking corrective action for internal control deficiencies?

    <p>Senior management and the board of directors.</p> Signup and view all the answers

    What is a key factor in the organization's commitment to internal control?

    <p>Developing and retaining competent individuals in alignment with objectives.</p> Signup and view all the answers

    What aspect do external communications regarding internal control involve?

    <p>Addressing matters that affect internal control functionality.</p> Signup and view all the answers

    What is the focus of the risk function perspective in COBIT 5?

    <p>To establish efficient core risk governance and management activities</p> Signup and view all the answers

    What was issued by COSO in 2004 related to risk management?

    <p>Enterprise Risk Management — Integrated Framework</p> Signup and view all the answers

    Which of the following is NOT an objective of Enterprise Risk Management (ERM)?

    <p>Improving customer satisfaction</p> Signup and view all the answers

    Which process is aided by COBIT 5 enablers according to the risk management perspective?

    <p>Identifying, analyzing, responding to, and reporting on risk</p> Signup and view all the answers

    Which key outcome is stated as an integral part of the strategy selection process in ERM?

    <p>Identifying, assessing, and managing risks</p> Signup and view all the answers

    What could be a reason for the increase in control risks in organizations?

    <p>Lack of awareness about potential threats</p> Signup and view all the answers

    How is internal control defined?

    <p>A process designed for reasonable assurance in achieving organizational objectives</p> Signup and view all the answers

    What is NOT a characteristic of internal control?

    <p>Providing absolute assurance</p> Signup and view all the answers

    What are the three main objectives of internal control?

    <p>Compliance objectives, reporting objectives, operational objectives</p> Signup and view all the answers

    Which of the following best describes the adaptability of internal control?

    <p>It should be adaptable to the entity structure</p> Signup and view all the answers

    What has led managers to skip vital control processes?

    <p>High productivity and cost reduction pressures</p> Signup and view all the answers

    Which of the following does NOT contribute to the rising threats to AIS?

    <p>Enhanced training for IT personnel</p> Signup and view all the answers

    What is one of the preconditions for an effective internal control system?

    <p>Clear organizational missions and visions</p> Signup and view all the answers

    What is a key change in the COSO ERM framework from 2004 to 2017?

    <p>Changed the structure to five components</p> Signup and view all the answers

    Which of the following is NOT a component of the COSO ERM 2017 framework?

    <p>Event Identification</p> Signup and view all the answers

    What does the COSO ERM 2017 framework promote in organizations?

    <p>Integration of ERM practices throughout an organization</p> Signup and view all the answers

    What is one of the four categories of objectives in the COSO ERM framework?

    <p>Strategic objectives</p> Signup and view all the answers

    Which aspect is focused on improving decision-making in the COSO ERM 2017 framework?

    <p>Alignment with strategy setting</p> Signup and view all the answers

    What did organizations find challenging about the COSO ERM 2004 framework?

    <p>The complexity and lack of clarity</p> Signup and view all the answers

    How many principles does the COSO ERM 2017 framework consist of?

    <p>20 principles</p> Signup and view all the answers

    Which component of the COSO ERM 2017 framework involves resource allocation?

    <p>Strategy and objective setting</p> Signup and view all the answers

    Study Notes

    Internal Control Components

    • The organization evaluates internal controls to ensure they are effective in minimizing risks to the achievement of its objectives.
    • Control activities are implemented to support the functioning of internal controls and are communicated to those responsible for taking corrective action, including senior management and the board of directors.
    • Management must demonstrate commitment to attracting, developing, and retaining competent individuals aligned with organizational objectives to support internal control.
    • The organization considers the potential for fraud when assessing risks.
    • The organization communicates with external parties regarding matters affecting the functioning of internal controls.
    • The organization deploys control activities through policies and procedures that put policies into action.
    • There are five components of internal control: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities.
    • The control environment provides the basis for carrying out internal controls across an organization.
    • Risk assessment is a dynamic and iterative process that identifies and analyzes risks that could impair the achievement of objectives.
    • Monitoring activities are ongoing evaluations of internal control effectiveness and can be done through separate evaluations, a combination of the two, or ongoing monitoring.

    Control & AIS Threats

    • Control risks have been increasing in recent years.
    • Threats are underestimated, and controls are not always well understood.
    • Productivity and cost reduction pressures contribute to increased risks.

    Internal Control Definition

    • Internal control is a process designed to provide reasonable assurance to achieve organizational objectives relating to operations, reporting, and compliance.

    Understanding Internal Control

    • Internal control is an ongoing process.
    • It is effected by people.
    • It aims at providing reasonable assurance (not absolute assurance).
    • It is adaptable to the entity's structure.

    Internal Control Objectives

    • Internal control aims to achieve three objectives: Operations Objectives, Reporting Objectives, and Compliance Objectives.

    COBIT 2019

    • COBIT 2019 provides two perspectives on how to use it within a risk context: the Risk function perspective, and the Risk management perspective.
    • The Risk function perspective describes what is needed in an organization to build and sustain efficient and effective risk governance and management.
    • The Risk management perspective describes how the core risk management process of identifying, analyzing, responding to, and reporting on risk can be assisted by COBIT.

    COSO ERM

    • COSO ERM is a detailed framework for Enterprise Risk Management developed by the Committee of Sponsoring Organizations of the Treadway Commission.
    • COSO ERM focuses on identifying, assessing, and managing risks to effectively create and protect value.
    • The first publication of the ERM framework was in 2004.
    • COSO ERM 2004 included eight components: Internal Environment, Objective Setting, Event Identification, Risk Assessment, Risk Response, Control Activities, Information and Communication, and Monitoring.
    • The second publication of the COSO ERM framework was in 2017.
    • COSO ERM 2017 has five components including: Governance and culture, Strategy and objective setting, Performance, Review and revision, and Information, communication, and reporting.
    • COSO ERM 2017 is principle-based and has 20 principles.
    • The COSO ERM 2017 framework promotes integration of ERM practices throughout an organization.
    • The COSO ERM 2017 framework aligns with strategy setting and performance.
    • The COSO ERM 2017 framework focuses on improving decision-making in governance, strategy, objective setting, and day-to-day operations.
    • The COSO ERM 2017 framework emphasizes allocating resources according to predetermined principles.
    • The COSO ERM 2017 framework includes Governance and culture, Strategy and objective setting, Performance, and Review and revision.

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    Related Documents

    Control & AIS Part 2 PDF

    Description

    This quiz focuses on the essential components of internal control systems within organizations. It explores evaluation methods, implementation of control activities, management commitment, and communication channels related to internal controls. Understand the framework designed to minimize risks and achieve organizational objectives effectively.

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