Internal Control Consideration

May 2012

Vierna Suryaningsih, SE. Akt., BAP., CIA

Agenda
Thought flow Understanding the internal control concept Internal control assessment

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Thought flow

What we learn today

Communication with previous auditor

Understanding clients business and risks

Fraud risk and legal risk assessment

Perform the analytical review

Determine audit nature, scope and timing

Understanding the internal control concept

Internal control assessment

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

Page 3

Understanding the internal control concept

Consider the internal control

Definition of internal control

Control activities performed by internal parties within entities to

ensure the accomplishment of the following objectives: - Financial reporting reliability - Operating effectiveness and efficiency - Compliance to the prevailing laws and regulations

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Understanding the internal control concept

Consider the internal control

Five components

Control environment Risk assessment Control activities Information and Communication Monitoring

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

Page 5

Understanding the internal control concept

Consider the internal control

Internal control limitations

Management overrides of controls Collusion Cost of controls Contra-productive corporate governance system / company culture

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Internal control assessment

Consider the internal control

Assessing Internal Auditor (IA) functions

IA Independency and objectivity

Scope of internal audit review

Reviewing IA works (including working paper)

Communication with IA

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Internal control assessment

Consider the internal control

IA vs Public Accountant assertions

Internal Auditor Completeness Accuracy Validity Restricted Access

Public Accountant Completeness Accuracy Valuation Existence and Occurrence Rights and Obligations Presentation and Disclosure Cut Off Reclassification

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Internal control assessment

Consider the internal control

Group Discussion Part 1

Read the brief procedures on area assigned to your group Discuss within your group the internal control activities performed Determine whether there are weaknesses on the internal control

Deliverables: List of internal control activities List of internal control weaknesses

Assigned time: 20 minutes

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Internal control assessment

Consider the internal control

Applied internal control, does it adequate?

Review the internal control implementation

- The design does it adequate? Cost of control? - The implementation does it effective?
Next step: create the audit procedures

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Internal control assessment

Consider the internal control Defines the audit procedures

Create the audit procedures

The adequacy of the internal control defines the depth of audit

procedures performed
Test of control Adequate? No Ignore the internal control In-depth audit procedure More substantive test

Yes Test of detail control

No
Effective?

Yes Less substantive test

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Internal control assessment

Consider the internal control Defines the audit procedures

Group discussion Part 2

Assess the audit risk for area assigned to each group Combined the identified audit risks with the result of your first group

discussion and prepare the audit procedures for each respective area Deliverables: Audit procedures for each respective area Assigned time: 25 minutes

Vierna Suryaningsih, SE. Akt, BAP., CIA Understanding Clients Business

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Thank you

Vierna Suryaningsih, SE. Akt., BAP., CIA