Cia Part 1 - Su 3: Control: Types And Techniques

A means of understanding a whole by studying its parts and their relationships to each other and to the whole

Involves developing standards and generalizations for a situation, set of circumstances, or a process. It is a means of combining individual components or parts to produce a whole

Relating a situation, set of circumstances, or process to predetermined or synthesized standards

Any action taken by mgmt, board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that both objectives and goals will be reached

The policies, procedures (both manual and automated), and activities that are part of a control framework, designed and operated to ensure that risks are contained within the level that an organization is willing to accept

1. Establishing standards

2. Measure performance against standards

3. Examining and analyzing deviations

4. Taking corrective action

5. Reappraising the standards based on experience

Preventative

Detective

Corrective

Directive

Deter the occurrence of unwanted events

Alert the proper people after an unwanted evetq

Correct the negative effects of unwanted events

Cause or encourage the occurrence of a desirable event

Policy and procedure manuals

Employee training

Job descriptions

1. Compensatory (mitigative) controls

2. Complementary controls

May reduce risk when the primary controls are ineffective, bu do not, by themselves, reduce risk to an acceptable level

Work with other controls to reduce risk to an acceptable level. Their synergy is more effective than either control by itself

1. Input controls

2. Processing controls

3. Output controls

Primary controls that relate to the business tasks performed by a particular system

Batch Input Controls

Online Input Contros

Ensure that data are complete and accurate during updating

Ensure that processing results are complete, accurate, and properly distributed

Feedback Controls

Concurrent Controls

Feedforward Controls

Report information about completed. Permit improvement in future performance by learning from past mistakes

Adjust ongoing processes. Real-time controls that monitor activities in the present to prevent them from deviating too far from standards

Anticipate and prevent problems. Require a long-term perspective

Should be based on relevant established accounting principles. May include proper authorization, appropriate recordkeeping, safeguarding of assets, and compliance with laws

Apply to production and support activities. Should be based on management principles and methods, because they may lack established criteria or standards

Dependent on the intervention of humans for their proper operation, for example, regular performance of bank reconciliations, such as checklists

Executed whenever needed with no human intervention

Matches controls with risks in certain circumstances

Reduce the risk of errors and prevent an individual from perpetrating and concealing fraud

1. Authorization of transaction

2. Recording of transaction

3. Custody of associated assets

ARC

A - Authorization

R - Recordkeeping

C - Custody

VP of Operations

Chief Accounting Officer (Controller)

CFO (Treasurer)

VP Administration

VP Human Resources

Sales

Purchasing

Warehouse

Receiving

Shipping

Production

A/R

Billing

A/P

General Ledger

Inventory Control

Cost Accounting

Payroll

Cash Receipts

Cash Disbursements

Credit

Mail Room

Human Resources

1. Sales to customers on credit and recognition of receivables

2. Collection of cash from customer receivables

3. Purchases on credit and recognition of payables

4. Payment of cash to satisfy trade payables

5. Payment of employees for work performed and allocation of costs

A: Customer, Sales, Credit Billing

C: Shipping, Warehouse

R: Inventory Control, A/R, General Ledger

A: Customer, Bank

C: Mail Room, Cash Receipts

R: A/R, General Ledger

A: Inventory Control, Purchasing

C: Vendor, Receiving, Warehouse

R: A/P, General Ledger

A: Vendor, Purchasing

C: Cash Disbursements

R: A/P, General Ledger

A: HR, Production

C: Cash Disbursements, Bank

R: Time-keeping, Cost Accounting, Payroll, A/P, General Ledger

CEO establishes the tone at the top

Commitment to integrity and ethical values reflect in selection of senior mgmt positions

Must be capable of objective judgment, knowledge of industry, willing to ask relevant questions about mgmt decisions

Subcommittees: audit, compensation, finance, risk

Important consulting and advisory role

Evaluates the soundness of the system or internal control

Cannot be responsible for selecting and executing controls to remain independent

Traditional, mechanical approach

Measures performance against standards

Corrective action through the individual responsible for the function

Corrective action tends to come after performance. Result may be a response to poor performance rather than its prevention

Evaluates the entire process of management and the functions performed. Attempts to improve the process instead of simply correcting the specific performance of the manager - i.e, management by objectives

Employment of all the means devised to promote, direct, restrain, govern, and check upon its activities for the purpose of seeing that objectives are met. Include form of organization, policies, systems, procedures, instructions, standards, committees, charts of accounts, etc

Approved intentional structuring of role assigned to people so that it can achieve its objectives efficiently and economically

Stated principle that requires, guides or restricts action

Clearly stated in writing

Systematically communicated

Conform with laws and regs

Designed to promote conduct of authorized activities in an effective, efficient, and economical matter

Periodically reviewed

Methods employed to carry out activities in conformity with prescribed policies

One employee's work is automatically checked by another to reduce possibility of fraud

For nonmechanical ops, procedures should not be so detailed as to stifle use of judgment

As simple and inexpensive as possible

Should not be overlapping, conflicting, or duplicative

Periodically reviewed and improved as necessary

Supervision

New employees should be investigated as to honesty and reliability

Give training that provides the opportunity for improvement and keeps them informed of new policies/procedures

Give information on duties and responsibilities of the other segments of the org to better understand how and where their jobs fit into the org as a whole

Performance should be reviewed periodically to see whether all essential requirements of the job is being met

Indispensable means of financial control over activities and resources

Financial scorekeeper of the organization

Fit the needs of managers for rational decision making rather than the dictates of a text book

Should be based on lines on responsibility

Financial reports of operating results should parallel organization units responsible for carrying out operations

Accounting should permit controllable costs to be identified

Statement of expected results expressed in numerical terms.

Sets a standard for input of resources and what should be achieved as output and outcomes

Reports should be made in accordance with assigned responsibilities

Individuals/units report only on what they are responsible for

Costs should be weighed against benefits

Should be simple and consistent with nature of the subject matter

Performance reports should show comparisons with predetermined standards

If performance cannot be quantified, report should be designed to emphasize exceptions or other matters requiring attention

Should be timely

Recipients should be polled periodically to see whether they still need the reports they are receiving or if the reports could be improved