Internal Control Papamoss
Internal control systems
As defined in Paragraph 4(c) of ISA 315, internal control is “the process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.”
It includes all the policies and procedures (internal controls) adopted by the directors and management of an entity in order to achieve their goals of ensuring, as far as practicable, the orderly and efficient conduct of its business, including: adherence to management policies; safeguarding of assets; prevention and detection of fraud and error; ensuring the accuracy and completeness of the accounting records; and timely preparation of reliable financial statements (Kan, 2013; Kwok, 2005). Auditors generally seek to rely on the internal controls within an entity to reduce the amount of testing on final balances.
Interestingly, the eight features of an internal control system are popularly known through these two mnemonics words, namely “PAPAMOSS” or “SOAPSPAM”. The eight features are:
Physical control:
This is mainly concerned with the custody and protection of assets such as cash and inventories. It involves tight security measures and procedures to ensure that only authorised personnel have access to the records and assets. For examples, the installation of fences, gates, doors as well as the use of locks and keys.
Authorisation and approval control:
No transactions should be carried out and no documents should be processed, without the approval or permission from an appropriate and responsible person. Approval like signing must be done with consent. Not only that, limits on authorisation should be clearly specified too.
Personnel control:
These are procedures
As defined in Paragraph 4(c) of ISA 315, internal control is “the process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.”
It includes all the policies and procedures (internal controls) adopted by the directors and management of an entity in order to achieve their goals of ensuring, as far as practicable, the orderly and efficient conduct of its business, including: adherence to management policies; safeguarding of assets; prevention and detection of fraud and error; ensuring the accuracy and completeness of the accounting records; and timely preparation of reliable financial statements (Kan, 2013; Kwok, 2005). Auditors generally seek to rely on the internal controls within an entity to reduce the amount of testing on final balances.
Interestingly, the eight features of an internal control system are popularly known through these two mnemonics words, namely “PAPAMOSS” or “SOAPSPAM”. The eight features are:
Physical control:
This is mainly concerned with the custody and protection of assets such as cash and inventories. It involves tight security measures and procedures to ensure that only authorised personnel have access to the records and assets. For examples, the installation of fences, gates, doors as well as the use of locks and keys.
Authorisation and approval control:
No transactions should be carried out and no documents should be processed, without the approval or permission from an appropriate and responsible person. Approval like signing must be done with consent. Not only that, limits on authorisation should be clearly specified too.
Personnel control:
These are procedures
References: Gray, I. and Manson, S., 2011. The audit process: principles, practice and cases. 5th ed. Australia: South-Western Cengage. Jones, G.R. and George, J.M., 2003. Contemporary management. 3rd ed. New York: McGraw-Hill. Kan, E., 2013. Audit and assurance – principles and practices in Singapore. 3rd ed. Singapore: CCH. Kwok, B.K.B., 2005. Accounting irregularities in financial statements: a definitive guide for litigators, auditors, and fraud investigators. Aldershot: Gower Publishing Limited.