Now, what are our objectives of financial?
Of internal control?
These are our objectives of internal control.
In other words, what do we want out of a good internal control system?
This is your ace in the whole.
Ive got to change the mnemonic...the ace in the hole.
What is your ace?
Accurate, reliable financial statements.
We want accurate, reliable, GAAP financial statements.
So, we want to make sure that these financial statements...what do we want a good internal
control system to do?
We want to make sure that these financial statements are accurate, they're reliable
and they are in conformity with US GAAP.
We want to make sure that we're in compliance with laws and regulations.
Now, compliance with laws and regulations.
That's going be looking at things like a compliance audit, like GAS, at government auditing standards
audit, and effectiveness and efficiency of operations, effectiveness and efficiency of
ops.
That's going to be like an operational audit.
So, remember in Audit 1, I said there's 3 different types of audits?
You have a compliance audit, operational audit, financial statement audit.
So our goal of looking at internal control is, with internal control, we would like certain
objectives.
And what is our objective?
Woot...there's your ace.
We want to make sure we have accurate, reliable financial statements, compliance with laws
regulations and effectiveness and efficiency of operations.
Alrighty...then it says the auditor should obtain an understanding of the 5 components
of internal control.
So these are the 5 components of internal control.
Now remember I said I need to understand internal control.
So what we need to do is, we need to go through and define what internal control really is.
And internal control consists of these 5 components.
Now, this has shown up as a simulation.
It always shows up as multiple choice.
So, you need to remember the five components.
So let's put up here the five components of internal control.
And a good way to remember this is, if you don't remember it, it would be a crime.
What�s your mnemonic?
Crime.
Wow!
Love mnemonics.
So we're going to have things like control activities, control activities, risk assessment,
information and communication, monitoring and your control environment.
So these are the 5 components of internal control.
So, they're going to ask you which is, which not a component of internal control is.
It's imperative, it's important to remember the mnemonic crime.
Alright.
We got control activities, risk assessment, information, monitoring, control environment,
C-R-I-M-E...There's your crime C-R-I-M and E...crime, crime.
Do doo doo doo do wooo that was Shane, anyway, old song?
Alright, now, the real order is this, 1, 2, 3, 4, and 5.
Hmm?
First, we're going look at the overall clients control environment and we�re going to say
here�s what we define as the environment.
Is there a basis for reliance?
Do we think the overall environment looks okay?
Then we need to assess the risk of something going wrong.
Assess the risk, and by risk assessment, we're saying we need to, how does the company identify,
analyze and manage what could go wrong?
Then we're going to look at the control activities.
These are the activities upon which you want controls.
For example, I'd mentioned in audit 1 this mnemonic ARCS...authorization, recording,
custody, comparison...those...and segregation...those are areas upon which you want controls.
Then we're going to gather information and communicate it on a timely basis, and then
we're going to see how the system is monitored.
How do they monitor the system, is it operating as designed?
So when I say you need to understand internal control, internal control really consists
of those 5 components called CRIME.