Exam (elaborations)
CPA EXAM BEC Module 1 = Internal Control Frameworks (1).
- Institution
- CISA: Domain #2, Part A: IT Governance
CPA EXAM BEC Module 1 = Internal Control Frameworks (1).
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CPA EXAM BEC Module 1 = Internal ControlFrameworks
COSO stands for - ANS-The Committee of Sponsoring Organization
What is the COSO - ANS-an independent private sector initiative was initially established in the
mid 1980s to study the factors the cause fraudulent financial reporting
Sponsoring Organizations include 5 major financial professional associations in the US - ANS-1)
American Accounting Association (AAA)
2) American Institute of Certified Public Accounting (AICPA)
3) Financial Executive Institute (FEI)
4) Institute of Internal Auditors (IIA)
5) Institute of Management Accountants (IMA)
What happened to the COSO in 1992? - ANS-issued internal control - integrated framework to
assist with determining internal control effectiveness
What was the 2013 COSO update? - ANS-to deal with changes in technology, globalization,
business models. Formalized fundamental concepts that were part of the 1992 framework.
- evolved into 17 principles that have been categorized within 5 major internal control
companies
What is COSO used for? - ANS-To document the assessment of internal controls over financial
reporting
COSO Internal Control Framework is used..... - ANS--used by company management and BOD
to obtain an initial understanding of what constitutes an effective system of internal controls and
provide insight as to when internal controls are being properly applied in the organization
- provides confidence to external stakeholders
Pass Key #1 What does an effective internal control system require?? - ANS--An effective
system of internal controls requires more than adherence to policies and procedures by mgmt ,
BOD, and internal auditors
-It requires use of judgment in determining the sufficiency of controls, applying the proper
controls, and assessing the effectiveness of the system of internal controls
Principles-based approach?? - ANS-of the framework supports the emphasis on the importance
of management judgement
, What is an internal control?? - ANS-a process that is designed and implemented by an
organizations mgmt, BOD, and other employees to provide reasonable assurance that the
organization will achieve its operating, reporting, and compliance objectives
Application to MGMT and Board (ADJI) Apply, determine, judgment, identify - ANS-1) effectively
apply internal controls within overall organization, divisional (operating), unit at a functional
2) determining requirements of an effective system of internal control by ascertaining whether
the components and principles exist and are functioning properly
3)allowing judgment and flexibility in the design and implementation of the system of internal
control within all operational and functional areas of the organization
4) identifying and analyzing risks, then develop actions to minimize these risks to an acceptable
level
-eliminate ineffective controls
-extend IC application beyond an organizations financial reporting
Application to Stakeholders (GU GE GO GM) - ANS-Provides value to external shareholders by:
1) greater understanding of what constitutes an effective system of internal controls
2) greater confidence in mgmt to eliminate ineffective controls
3) greater confidence that the board will have effective oversight of organization's ICS
4) confidence the organization will meet objectives and respond to risks affecting the
organization
What does the COSO Cube represent? - ANS-- depict the relationship between an entity's
objectives, integrated internal control components, and organizational structure
Objectives of the COSO cube? - ANS-(columns)
1) Reporting
2) Operations
3) Compliance
Internal Control Components of COSO Cube? - ANS-(Rows)
1) Control Environment
2) Risk Assessment
3) Control Activities
4) Info/Communication
5) Monitoring Activities
Organizational Structure of COSO Cube? - ANS-3rd Dimension
1) Entity Level
2) Division Level
3) Operating unit
4) Function
What are the 3 framework objectives? - ANS-1) Operations Objectives
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