Meet again guys. Phew, what a night. A lot of things did happen tonight to the extent I almost become emotionally unstable. Well don’t want to talk about that for now. Final mood is in the air and let me recap back what I have learned or managed to a least get some knowledge today.
Well, I began earlier in the morning today compare to yesterday. I woke up at 7.30, then after performing subuh prayer (ehem.. J) then straight away to my study desk. Continue reading audit, this time chapter 10, Internal Control. Basically this chapter is more complex compare to the previous one. System of internal control consist of policies and guidelines to provide management with reasonable assurance for the company to achieve its goals. The broad objectives of Internal Control (IC) are as followed :
1. Reliability of financial reporting, prepare according to standard
2. Efficient and effective operations
3. Compliance with laws and regulations, section 404 of SOX required all auditors to report about the effectiveness of the client internal control
Below are the different between management responsibility and auditor’s responsibility..
1. Management responsibility, establish and maintain the IC and also as required by Sec 404 to publicly report on the effectiveness of the IC
2. Auditor’s responsibility, understand and test the IC and as required by sec 404 report the effectiveness of IC
Below are the key concept in designing IC :
1. Reasonable assurance, should design IC that provide reasonable but not absolute assurance
2. Inherent limitation, IC effectiveness depends on the competency of the people using it.
Committee of sponsoring organization is a framework to use by US to measure the effective level of internal control. Basically there are 5 elements under COSO that was design and implement in order to provide reasonable assurance to management. The 5 elements are as followed :
1. Control environment
-Consist of actions, policies, and procedures that reflect the top management view on the importance of IC.
-the subcomponents are integrity and ethics, commitment to competence, audit committee participation, management philosophy, organizational structure and HR policies and practices.
2. Risk assessment
-Analyze risk that relevant to preparation of financial statement and reflect accordingly and in effective way
3. Control activities
-Types of control activities:
a) Adequate separation of duties
b) Proper authorization of transaction
c) Adequate documents and reports
d) Physical control and assets report
e) Independence checks on performance
4. Information and communication
-Initiate record, process and report entity transaction and maintain accountability of related asset.
5. Monitoring
-Deal with ongoing periodic assessment of the quality of IC by management to determine that IC is operated accordingly.
Because of the complexity of this chapter, that is all I can summarize. I don’t want to summarize further because I’m afraid that I might provide the wrong information. Next after audit I managed to flip through few chapters of AFA, the piecemeal and the complex group structure. Brief information about those two topics as its difficult for me to write everything that I know regarding those topics. What you guys need to know about the chapter piecemeal is how to deal with the intra group transaction between subsidiaries to the parent. Remember to minus the unrealized profit for the current year under the post-acq in the interest for the subsidiaries. I bet you guys can’t imagined how to do it, so no short way you have to read the textbook to know more about how to deal with the transaction. I think it is not appropriate for me to blog about AFA since it is more complex and need details explanation together with example and timeline. So my advice, open the textbook and read pages by pages :).
-theskyisnevertoohightoaim-
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