Case Study: Internal Control

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Milestone Three: Internal Control
III. Internal Control
According to COSO’s Internal Control- Integrated Framework, Internal Control is a process put in place by a board of directors, senior management and all levels of personnel to provide reasonable assurance that the organization will achieve its objectives. SAS No. 78 consist of five interrelated components (a) Control Environment; (b) Entity’s Risk Assessment; (c) Control Activities; (d) Information and Communication and (e) Monitoring Activities. (Messier, Glover, & Prawitt, 2015).
A. Control Environment
The Control Environment is the foundation on which an effective system of internal control is built and operated in an organization that is looking to (1) “achieve its strategic …show more content…

The company uses conservative accounting policies and they are conscientious about developing accounting estimates., and they are taking the internal control very seriously. The company in question has a Strategic Risk Management Committee that evaluates how future events may affect the company. EWC management pays attention to the financial statement with any misstatement or fraud and they are willing to adjust the material misstatement. The EWC manages its business risks using a business plan and strong budgeting process. They periodically consult with its auditors on accounting issues, also the management of EWC was very responsive to prior recommendations made by auditors, and they consulting with the auditors on new accounting issues and when they want to make improvements on internal controls (EarthWear , …show more content…

2015, p. 182). The company in questions has set clear entity-wide objectives, and also the company strives to provide excellent, high-quality products at reasonable prices. The management has prepared a five-year business plan that includes goals about the company’s products, responsibilities, and growth plans. They are holding monthly meetings to set policies and objectives, review performance, and discuss the recent activities that may affect the company performance, and take appropriate action. The Risk Management Department plays an important role to identify, analyze and manage risks of not meeting financial reporting objectives. The control risk is not a one-time thing, so after we conducted several simple tests of controls, we get two deviations on control activities, and the maximum of the deviation is only one. So, the control risk is increasing. The problem occurred in the authorization process, so we must conduct more substantive tests on control activities, and our focus must be on authorization process (EarthWear ,

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