Internal Control Components: Definition and Application
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What internal controls components are common among long-term assets and liabilities, and equity accounts? What components are unique to each? How can an auditor assess these controls?
What are the key management assertions related to long-term assets and liabilities? What are the most important assertions related to long-term assets and liabilities? How will auditors test these assertions?
What are the key management assertions related to equity? What are the most important assertions related equity? How will auditors test these assertions?
What are the key management assertions related to cash? What are the most important assertions related cash? How will auditors test these assertions?
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Solution Summary
The solution lists the general components of internal control followed by a short paragraph of explanations for each of the five components. Next the various components are discussed as they relate to the specific assertions named in the problem. 486 words.
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The general components of internal control are
1. control risk
2. risk assessment
3. information and communication
4. monitoring
5. control activities
Control risk would be assessed for the entire company (including assets, liabilities and equity) because it relates to the integrity and ethics of the environment including management style, structure and policies.
Risk assessment has to do with credibility of the systems, the software, and the personnel in changing conditions to properly account for assets and liabilities. Fraud risk could affect assets within this category.
Information and communication relates to the group of procedures and records established to initiate, record and report transactions for all three (assets, liab and equity). The system should identify and record transactions on a timely basis with the proper amounts ...
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