What are the three types of internal controls?
The three main types of internal controls are preventative, detective, and corrective controls.
1) Preventative controls: Preventative controls are designed to prevent misstatements from occurring, whether due to fraud or error. Some examples of preventative controls include segregation of duties, access controls, physical controls, etc.
2) Detective controls: Detective controls are designed to discover mistakes made despite the existence of preventative controls. These controls are typically manual and relate to reviewing results. Examples include physical inventory observations, account reconciliations, and reviewing the budget to actual financial results.
3) Corrective controls: Corrective controls are less common than preventative or detective controls. Corrective controls are designed to take corrective action on discovered mistakes. Some examples include your credit card company blocking your credit card if they detect fraud, or a sprinkler system coming on when it detects smoke/fire.
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How can the audit team assess the design of internal controls?
The audit team is required to assess the design of the internal controls that management has implemented. The audit team should assess whether or not the design will prevent or detect and correct material misstatements. The visual below lists out the different ways an audit team can assess the design of internal controls:
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How can the audit team assess the operating effectiveness of controls?
The audit team must assess whether the controls that management has designed and implemented are actually effective. The auditor should also determine whether the person(s) implementing the internal controls are qualified to do the job. The visual below lists out the ways to assess the operating effectiveness of internal controls:
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What is an integrated audit?
An integrated audit is when the audit firm must express an opinion the fair presentation of a company’s financial statements and the design and operating effectiveness of a company’s internal controls. Rule 404 is commonly associated with an integrated audit as rule 404 relates to an audit over a company’s internal controls. Public companies that...
How can the audit team assess the design of internal controls?
The audit team is required to assess the design of the internal controls that management has implemented. The audit team should assess whether or not the design will prevent or detect and correct material misstatements. The visual below lists out the different ways an audit team can assess the design of internal controls:
How can the audit team assess the operating effectiveness of controls?
The audit team must assess whether the controls that management has designed and implemented are actually effective. The auditor should also determine whether the person(s) implementing the internal controls are qualified to do the job. The visual below lists out the ways to assess the operating effectiveness of internal controls:
What is an integrated audit?
An integrated audit is when the audit firm must express an opinion the fair presentation of a company’s financial statements and the design and operating effectiveness of a company’s internal controls. Rule 404 is commonly associated with an integrated audit as rule 404 relates to an audit over a company’s internal controls. Public companies that...
