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Chapter 2 –
Internal
control & audit
processes
LEARNERS SHOULD BE ABLE TO:
1. Demonstrate knowledge of internal audit processes.
2. Define & explain what is meant by internal audit.
3. Demonstrate understanding of the difference between internal
control and an internal audit, the role of the internal auditor, division
of duties, documentation & physical controls.
4. Identify internal control procedures when receiving cash and buying
and selling on credit.
Types of controls
Preventitive controls
Used to deter or prevent an undisirable event from
occuring.
Detective controls
Used to detect undisirable events that have occured.
Corrective controls
Used to correct the effects of undesirable events.
Directive controls
used to discourage an undesirable event to occur or
to encourage a desirable event to occur
, Control in the business environment
✓ An effective system of control is essential to all businesses and helps to prevent,
manage and control risk so that the business objectives can be achieved.
✓ Objectives must first be defined & business operations to achieve these objectives
need to be established.
✓ Business operations need to be implemented.
✓ In order to guard against risks, businesses need to establish an effective risk
management and control system, which should compromise of the following
components:
A risk A system of
management internal An internal
function control audit function
Risk management
Risk management: Risks:
The process of identifying, Uncertain future events that may have a
assessing and managing negative impact on business operations
risk. and thus detrimental effect on the
business achieving its objectives.
The risk management function of a business should be responsible for the following
activities:
Establishing the risk management policy and strategy of the business.
Analysing the business operations and procedures to identify risks.
Evaluating and assessing the potential impact of the risks identified.
Deciding on the appropriate action to be taken in response of each of the risks
identifies.
Developing and implementing appropriate internal control processes to combat the
risks.
Continual reviewing of the risk management process and strategy.
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