Evaluating Internal Controls Checklist

Evaluating Internal Controls Checklist

Wes Sherman

ACC544 - Internal Control Systems

May 24, 2010

Dr. Carla Henryhand

Abstract

The Sarbanes-Oxley Act of 2002 requires an audit of management’s assessment of internal controls for publicly traded companies. In addition, the evaluation of a company’s internal control system is to assess control risk to give auditors a basis for planning the audit and to provide information useful to management to meet the company’s control mission. Five basic components of the internal control system and three evaluation phases help auditors to validate the complete internal control system. The data are best quantified with the use of an internal control checklist.

Evaluating Internal Controls Checklist

The Committee of Sponsoring Organizations of the Treadway Commission (COSO) define internal control “…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…” (Louwers, Ramsey, Sinason, & Strawser, 2007, p. 149-150).

An internal control checklist helps provide reasonable assurance that control objectives are achieved with cost-benefit considerations. According to University of Florida (2010), “The objective of the internal control checklist is to provide…a tool for evaluating internal control structure and general compliance, while also promoting effective and efficient business practices (University of Florida Internal Control Checklist, para. 1).

Five Basic Components of Internal Control

Sarbanes-Oxley now requires management to establish a control environment encompassing five basic components of internal control: (1) the control environment, (2) risk assessment, (3) control procedures, (4), monitoring, and (5) information and communication systems linking the components (Louwers, Ramsey, Sinason, & Strawser, 2007). Exhibit 3.1 illustrates an internal control checklist.

Exhibit 3.1...