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Understand the key elements of the COSO internal control framework

4 important questions on Understand the key elements of the COSO internal control framework

What is the PDC internal control model?

- Preventive controls > first line of defense
- Detective controls > second line of defense
- Corrective controls > reverse the effects of errors detected

What is the control environment?

The foundation for the other elements in the framework, important elements of the environment are:
 Integrity and ethical values of management
 The structure of the organization
 The participation of the BOD & Audit committee
 Managements philosophy and operating style
 Procedures for delegating responsibility and authority
 Methods for assessing performance
 External influences (e.g. regulatory agencies)

What is the risk assessment?

o Risk assessment is the identification and analysis of risks relevant to financial reporting (e.g. new product lines, foreign markets, restructuring/downsizing)
o Risk management unfolds itself around the concepts of:
 Inherent risk
 Residual risk
 Likelihood
 Impact

What is the information and communication?

o The quality of information the accounting information system generates impacts management’s ability to take actions and make decisions in connection with the organization’s operations and to prepare reliable financial statements.
o Information should flow through the COSO components
 Risk assessment > control activities

o Key is that auditors obtain sufficient knowledge of the information system