About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
4 1 1 Internal Controls and Risk Assessment Explained

1 1 Internal Controls and Risk Assessment Explained

Key Concepts

Internal Controls

Internal controls are the policies and procedures established by an organization to provide reasonable assurance regarding the achievement of objectives in the following categories:

Example: A company might implement segregation of duties to ensure that no single employee can both authorize and execute a transaction, thereby reducing the risk of fraud.

Risk Assessment

Risk assessment is the process of identifying and analyzing risks to the achievement of an organization's objectives. It involves understanding the nature of business risks and determining the likelihood and impact of these risks.

Example: A manufacturing company might assess the risk of equipment failure and implement preventive maintenance schedules to mitigate this risk.

Control Environment

The control environment sets the tone of an organization and affects the control consciousness of its people. It is the foundation for all other components of internal control and provides discipline and structure.

Example: A company with a strong ethical culture and a commitment to integrity is likely to have a robust control environment.

Control Activities

Control activities are the policies and procedures that help ensure management directives are carried out. They include activities that help mitigate risks to the achievement of the organization's objectives.

Example: Regular bank reconciliations are a control activity that helps ensure the accuracy of financial records.

Information and Communication

Information and communication involve the identification, capture, and exchange of information in a form and timeframe that enable people to carry out their responsibilities. Effective communication must occur in a broader sense, flowing down, across, and up the organization.

Example: A company might use an enterprise resource planning (ERP) system to ensure that all departments have access to accurate and timely information.

Monitoring Activities

Monitoring activities are processes used to assess the quality of internal control performance over time. They involve assessing the design and operation of controls on a timely basis and taking necessary corrective actions.

Example: Regular internal audits are a form of monitoring activity that helps ensure that internal controls are functioning as intended.

Examples and Analogies

Consider internal controls as the "immune system" of an organization. Just as the immune system protects the body from diseases, internal controls protect the organization from risks and threats.

Risk assessment is like "weather forecasting." Just as weather forecasts help prepare for upcoming conditions, risk assessment helps organizations prepare for potential risks.

The control environment is akin to the "culture" of an organization. Just as culture influences behavior, the control environment influences how internal controls are perceived and implemented.

Control activities are like "safety protocols" in a laboratory. Just as safety protocols ensure experiments are conducted safely, control activities ensure that operations are conducted effectively and efficiently.

Information and communication are similar to "blood circulation" in the body. Just as blood circulation ensures that all parts of the body receive nutrients, information and communication ensure that all parts of the organization receive necessary information.

Monitoring activities are like "health check-ups." Just as regular health check-ups ensure that the body is functioning well, monitoring activities ensure that internal controls are functioning effectively.

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