Audit Committee: Internal Control Framework - Essay Example

? Internal Control Framework Question What is Audit Ethics? Define and explain the Independence and External Part of Audit Committee? Answer: The Code of Ethics states the ideology and potential leading the actions of folks and organizations in the ways of internal auditing. It describes the least provisions for conduct, and behavioural prospect relatively than precise actions. The idea of system of moral values is towards encouraging the moral traditions inside a career of internal auditing. Internal auditing is an autonomous, intention pledge, a consult action considered towards inserting importance as well as progress the organization operation. It assists a business to achieve the aim through fetching methodical, closely controlled advance towards appraisal as well as develop efficiency of risk management, control, and governance processes. The Code of Ethics is essential as well as suitable in favour of the career of internal auditing, originated since it is resting on faith placed in its aim promise regarding governance, risk management, and control (Beattie & Fearnley, n.d.). The Codes of Ethics used by internal auditors is likely in the direction of affect as well as support the subsequent standards: These are the main objectives of ethics that are to be followed in every case for being in the area of code of ethics. Integrity Objectivity Confidentiality Competency Independence and External Part of Audit Committee The Audit Committee is answerable, used for making certain it analysis’s at least once a year the credentials, presentation and sovereignty of auditors. Also, the Audit Committee shall analysis a ceremonial printed declaration clearing up every relation among The External Auditors as well as Parent Company as well as its subsidiary. The Audit Committee will sustain a dynamic discussion with the autonomous auditors, casing a few revealed relations or checks so as to might force their neutrality and sovereignty. The Audit Committee will evaluate every future take on by company or its subsidiary of administration point or senior persons previously working through the sovereign auditors who offered checks towards the corporation. The Audit Committee will get, or counsel The Board of Directors so as to it takes, suitable measures towards managing the sovereignty of company’s External Auditors. To have an efficient association among the Audit Committee and External Audit, here exists a system contained to assist a release as well as guileless trade of information among Committee Members as well as External Audit all the time. Audit Committee members must exist inside an arrangement, talented to frankly talk about subjects of attention in a responsive way with External Auditors within several areas enclosed through the Committee’s function (Beattie & Fearnley, n.d.) External audit committee coverage The Audit Committee is supposed to be briefed on the projected External Audit reporting as well as completely believe on subsequent given terms by the company: the financial report regions of audit focus, appraisal of entity risks, as well as related fees; projected performance audit coverage; Some possible duplication among internal audit coverage. It can be predictable so as to the Audit Committee will evaluate every considerable association from External Audit about Intended Audit, Audit in development, accomplished audit, as well as widen a ranking incitement for the External Auditor to live there next to every committee summit meant for every schedule matter (by means of the omission of members-only gatherings so as to the Committee might grasp occasionally). Present there on every summit as a witness permits the external auditor to get a improved perceptive of an organizations functions as well as dangers along with, between other belongings, allows external auditor to offer a standing information lying on Audit doings furthermore to present contribution in favor of the committee’s consideration (BPP, 2011). Question 2: Audit and Corporative Governance, explain the role of Internal Auditors. Answer: Governance is the expression worn to explain the function of people assigned by means of regulation, control, along with path of a unit. Depending on the authority, diverse body might contain liability pro corporate governance: Board of Directors Audit Committee Other supervisory committees Benefits of Good Corporate Governance The majority express advantage is to non-management shareholders. Vital gain is the more competent portion of assets to its most creative uses. The auditor does not have shortest corporate governance accountability but somewhat provides a test on the information aspects of the governance structure. Corporate governance involves verdict assembly, responsibility, and monitoring. Decisions need pertinent and dependable information. Responsibility involves measuring, exposure, and precision. Monitoring involves systems and advice. Auditor’s main responsibility is to make sure whether the fiscal information given to investors is dependable (BPP, 2011). Objective of an Audit To state a specialist view on the equality by which financial statements present, inside every material compliments, a company’s financial situation, consequences of functions, along with cash flow within conventionality with GAAP (BPP, 2011). To be capable to state such a view, the auditor must look at the financial statements and sustaining report using sound auditing techniques. Community relies on financial statements to make profitable decisions. Particularly natives exterior to the enterprise. Audit provides self-assurance. Audit reduces doubt and threat. Audit adds worth (BPP, 2011). Roles of Internal Auditor The internal auditor is regularly describe as the organization’s important ally – the independent advisor who can face existing practice, support superlative practice and be a channel for development, with the purpose of ensuring that the business as a whole can accomplish its tactical objectives. Mandate: Internal Auditors have a responsibility to higher-ranking administration and the panel via the audit committee on the state of governance, risk management and power within the organization. Areas of Focus: Internal Auditors focus on the entire business, all departments, functions and operations Independence: Internal Auditors are the element of the organization but autonomous of board, they offer internal audit assurance and account to the audit committee. Evaluating controls and advising managers at all levels The Internal Auditor’s effort includes assessing the tenor and risk management customs of the organization as well as evaluating and reporting on the success and competence of the achievement of management policies. Evaluating risks Internal Auditors classify key actions and applicable risk factors and evaluate their importance. Altering trends and business/economic situation contact the way the internal auditor assesses risk. The techniques of internal auditing have altered from a hasty and control based form to a more practical and risk based approach. This enables the internal auditor to predict potential prospect concern and opportunities as well as identifying present issues. Control: Internal Auditors offer an autonomous vision on the organization’s governance, risk management and control processes. They evaluate the sufficiency of control design to make sure that risks are efficiently managed, and then test process of key controls to make sure they are working as planned and thus are effectual in running the organization’s risk. Analyzing operations and confirming information Internal Auditors work strongly with line managers to evaluate operations then details their result. The internal auditor must be well versed in the tactical objectives of the organization, so that they have a lucid perceptive of how the operations of any known element of the organization robust into the superior representation. Reviewing compliance Compliance review ensures that the business is adhering to regulations, rules and laws, codes of perform strategy and principle as they relate independently and jointly to every part of their organization. Driving Results: Internal Auditors make recommendations to develop the largely internal control atmosphere and to advance the prepared presentation of the business as a total. (ICAEW, 2004) Question 3: What are the 5 components of Internal Control? Answer: COSO Report: Internal Control – An Integrated Framework. The paper classifies what the commission thought to be the basic along with necessary intentions of every company or government body: Economy and proficiency of functions, Protection of possessions and accomplishment of preferred outcomes Consistency of financial and management information Fulfilment through laws along with system (Ramos, 2008; ICAEW, 2004). Purpose Explains a united loom in support of assessment of the internal control systems so as to management have intended towards: present sensible pledge of accomplishing corporate task, ideas, aims as well as preferred result, at the same time as adhering to laws along with policy Let the corporation to precisely details successes along with outcomes to the community as well as involved third parties. Provides as an ordinary source for managements, directors, regulators, academics and others to improve understanding enterprise risk management, its profit and boundaries, and to efficiently converse about enterprise risk management (ICAEW, 2004). The unique COSO framework has five control features desirable to assist guarantee outstanding business goals. The internal control framework comprises of following attributes: Control Environment; Risk Assessment; Control Activities; Information and Communication; and Monitoring (Ramos, 2008). Further particularly, the thinking procedure following the above 5 features was, they would effort jointly to hold up hard work to attain an organization's operations, policies and linked company intentions. All the 5 features as identified are essential for the effective functioning of the internal control system. 1. Control Environment  - Veracity and Ethical Values - Dedication to Competence - Board of Directors and Audit Committee - Management’s Philosophy and Operating Style - Organizational Structure - Assignment of Authority and Responsibility - Human Resource Policies and Procedures The control environment encompasses all aspects of the internal control framework; it is the cosmos inside which every additional rudiment exists. The control environment comprises such ideas as tenor, approach, consciousness, capability, and method. It originates much of its power from the tome recognized via the governing body along with senior administration (Ramos, 2008). 2. Risk Assessment  - Company-wide Objectives - Process-level Objectives - Risk Identification and Analysis - Managing Change Risk assessment involves management’s recognition and examination of pertinent dangers to accomplishing company goals. The goal of a threat appraisal is to file each company goal, as of the uppermost stage to the lowest stage as well as recognize all risks that might weaken or lump the goal (Ramos, 2008). 3. Control Activities  - Policies and Procedures - Security (Application and Network) - Application Change Management - Business Continuity / Backups - Outsourcing Control activities are urbanized to deal with every control objective in order to alleviate the dangers documented. They are the specific procedures, policies, as well as performances to facilitate that company objectives are accomplished along with threat alleviation tactics are executed. The diversity of controls is broad; along with actions it comprises separation of responsibilities, approval signatures as well as corporeal protection of possessions (Ramos, 2008). 4. Information and communication - Quality of Information - Effectiveness of Communication Information and communication holds internal control by assigning advice from administration towards workers in a shape along with a time outline so as to let them manage actions efficiently. Procedure be supposed to work in annul, exchanging information lying on outcome along with scarcity as of the ground levels of a business to executive along with the board of directors (Ramos, 2008). 5. Monitoring - On-going Monitoring - Separate Evaluations - Reporting Deficiencies Monitoring is a procedure to review the value of internal control over time through constant and particular assessments. Observing the internal controls to be adequate in changing circumstances would require the supervision of management, designated employees and outsourcing of internal audit assignments. All the attributes discussed above helps an organization in improving the efficiency of internal controls, compliance with relevant laws and regulations and improving reliability of financial reporting. In reality, all 5 of the features must exist there along with carrying out efficiently to wrap up so as to internal controls are successful used for every group of objectives. (Ramos, 2008). Bibliography BEATTIE, V., & FEARNLEY, S. (n.d.). Auditor Independence and Non-Audit Services: A Literature Review. [online]. Available at: http://www.icaew.com/en/technical/research-and-academics/publications-and-projects/~/media/Files/Technical/Research-and-academics/publications-and-projects/audit-and-assurance-publications/auditor-independence-and-non-audit-services.ashx [Accessed 11 May 2012] BPP LEARNING MEDIA (FIRM). (2011). ACCA, for exams in 2012. Paper F8, Audit and assurance (international). London, BPP Learning Media. INSTITUTE OF CHARTERED ACCOUNTANTS IN ENGLAND AND WALES. (2004). The internal audit function: guidance for audit committees. London, Institute of Chartered Accountants in England & Wales. [online]. Available at: http://www.icaew.com/en/technical/corporate-governance/~/media/Files/Technical/Audit-and-assurance/audit/guidance-for-audit-committees/the-internal-audit-function.ashx [Accessed 11 May 2012] RAMOS, M. J. (2008). How to comply with Sarbanes-Oxley Section 404: assessing the effectiveness of internal control. Hoboken, N.J., John Wiley & Sons. . Read More