Task 3: Internal control
1. What do you think is the primary problem at the Sunshine Center?
There where no financial reports or summaries of the cash flows. Probably, Barb wasn’t fare about the payments. Because there was no financial report it was not clear where all the money went to.
Why is accountability important to the Sunshine Center Committee? The director? Cli
ents of the Sunshine Center? Church members?
It is so important to the committee so they can check if the cash balance is still okay. The director can check if everybody does his work well and if there are no financial problems. The clients need to know if Sunshine is fair and the church members are maybe willing to serve the committee if they know it is fair. 3. The Committee of Sponsoring Organizations of the Treadway Commission COSO in- ternal control framework COSO 1992 is an excellent tool for understanding and imple- menting internal control. How is internal control defined in the COSO framework?
Internal control is broadly defined as a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
● Effectiveness and efficiency of operations.
● Reliability of financial reporting.
● Compliance with applicable laws and regulations 4.
Internal control may need to be applied selectively in a small organization. What are the components of the COSO framework, and what components do you think should be used at the Sunshine Center? Internal control consists of five interrelated components. These are derived from the way management runs a business, and are integrated with the management process. Although the components apply to all entities, small and mid-size companies may implement them differently than large ones. Its controls may be less formal and less structured, yet a small company can still have effective internal control. The components are:
● Control Environment — The control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Control environment factors include the integrity, ethical values and competence of the entity’s people; management’s philosophy and operating style; the way management assigns authority and responsibility, and organizes and develops its people; and the attention and direction provided by the board of directors.
● Risk Assessment — Every entity faces a variety of risks from external and internal sources that must be assessed. A precondition to risk assessment is establishment of objectives, linked at different levels and internally consistent. Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed. Because economic, industry, regulatory and operating conditions will continue to change, mechanisms are needed to identify and deal with the special risks associated with change.
● Control Activities — Control activities are the policies and procedures that help ensure management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the entity’s objectives. Control activities occur throughout the organization, at all levels and in all functions. They include a range of activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets and segregation of duties.
● Information and Communication — Pertinent information must be identified, captured and communicated in a form and timeframe that enable people to carry out their responsibilities. Information systems produce reports, containing operational, financial and compliance-related information, that make it possible...
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