Implementing and Auditing the Internal Control System

The book the reader has on hand addresses the need for a direct confirmation that senior management and the auditors have reviewed the effectiveness of the system of internal financial and operational controls. This text is divided into three parts. Part 1 defines both auditing and internal control, then explains why internal control must be audited and in which way this should be done to improve upon the quality of deliverables. Chapter 1 addresses the role of auditing in an organization. It demonstrates that auditing is an indispensable instrument of management, and documents that rigorous auditing can provide value-added services. This chapter also outlines the functions and responsibilities of the Auditing Committee, at the level of the board of directors. Its existence has been strongly recommended by the Basle Committee on Banking Supervision of the Bank for International Settlements (BIS). Chapter 2 focuses on internal control. After defining the internal control functions and the senior management policies on which these should rest, it presents to the reader the successive steps necessary for implementing a rigorous internal control system, demonstrating why properly studied and applied internal controls can be instrumental in curbing not only fraud but as well credit risk, market risk, operational risk, and other major exposures. Chapter 3 examines the need for internal controls from the viewpoint of globalization of financial markets. It brings home the point that important differences in accounting systems handicap internal control and auditing, and it documents how conflicts of interest work to the detriment of internal control -and therefore of the company's ability to take hold of itself. The theme of Chapter 4 is new standards for auditing internal controls and risk management systems. Practical examples range from the more classical auditing of cash flow to risk-based auditing. A methodology for auditing the internal control system is presented in Chapter 5. Internal control information is compared to military intelligence, and applications examples are taken from trading in derivative financial instruments. Accurate information passed in a timely fashion to decision-makers can enable them to take appropriate steps whether these focus on new business opportunities or on control action. The latter is the role of internal control intelligence. However, numbers and statistics are only a small part of the game. Much of the risk taken by a company because of trading and inventoried positions is inherently unqualified. Yet, we try not only to qualify it but also, whenever possible, to quantify it -because this is the only way to control it. On these premises rests Part II, which addresses top management's accountability for internal control. The line of responsibilities starts at the I am indebted to a long list of knowledgeable people, and of organizations, for their contribution to the research which made this book possible. Also to several senior executives and experts for constructive criticism during the preparation of the manuscript. The complete list of the senior executives and organizations who participated to this research is shown in the Appendix. Let me take this opportunity to thank Stephen Rutt and Zelah Pengilley for suggesting this project and seeing it all the way to publication, and Keith Povey and Barbara Docherty for the editing work. To Eva-Maria Binder goes the credit for compiling the research results, typing the text, and making the camera-ready artwork and index. With globalisation, deregulation and the advent of derivatives, credit institutions and the treasury operations of manufacturing, merchandising and service companies are finding that their traditional tools for management control no longer suffice. They must develop more efficient processes able to measure and monitor their risks in real-time. Internal control is a dynamic system covering all types of risk, addressing fraud, assuring transparency and making possible reliable financial reporting within such organisations. In Implementing and Auditing the Internal Control System , Dimitris N. Chorafas defines both auditing and internal control, and explains the value of internal control, why it must be audited, and how it can be most effectively achieved. He addresses top management's accountability for internal control, and uses case studies to demonstrate the application of such systems, and the importance of sound and well-informed analysis of the information gathered. Internal control systems are examined within the context of the globalization of financial markets, under the impact of the growth of information technology, and from the viewpoint of new regulations by supervisory authorities in Group of Ten countries as well as by the Basle Committee on Banking Supervision. Based on an extensive research project in the UK, US, Germany, France, Austria, Switzerland and Sweden, this book is an invaluable source of practical advice for implementing internal control systems, and making existing systems more efficient. It provides managers and professionals with guidelines for the interpretation and use of the resulting internal control intelligence.

dimitris N. Chorafas Defines Both Auditing And Internal Control, And Explains The Value Of Internal Control, Why It Must Be Audited, And How It Can Be Most Effectively Achieved. He Addresses Top Management's Accountability For Internal Control And Uses Case Studies To Demonstrate The Application Of Such Systems, As Well As The Importance Of Sound Analysis Of The Information Gathered. Based On An Extensive Research Project In The Uk, Us, And Continental Europe, This Book Is An Invaluable Source Of Practical Advice For Implementing Internal Control Systems And Making Existing Systems More Efficient.

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providing Working Definitions For Both Auditing And Internal Control, This Book Describes The Advantages Of Internal Control, Explains The Need For Auditing, And Recommends Specific Procedures. Case Studies Illustrate The Processes Involved And Emphasize The Need For A Skilled Analysis Of The Information Gathered. The Impact Of Globalization And The Growth Of Information Technology Are Given Particular Attention. Chorafas Is A Financial Consultant. Annotation C. Book News, Inc., Portland, Or (booknews.com)

Front Matter....Pages i-xxiii Front Matter....Pages 1-1 The Role of Auditing in an Organization....Pages 3-27 What is Meant by ‘Internal Control’?....Pages 28-53 Internal Control and the Globalization of Financial Markets....Pages 54-82 New Standards for Auditing Internal Control and the Use of Risk-Based Audits....Pages 83-104 A Methodology for Auditing the Internal Control System....Pages 105-129 Front Matter....Pages 131-131 Senior Management Responsibilities for Internal Control....Pages 133-158 Internal Control Implementation Must Focus on Core Functions....Pages 159-184 Establishing an Efficient Internal Control Structure....Pages 185-209 Front Matter....Pages 211-211 Applying Internal Control to Our Institution’s Limits System....Pages 213-234 Auditing Counterparty Limits and Trading Limits....Pages 235-261 An Internal Control System for Engineering Design, Product Development, and Quality Assurance....Pages 262-288 Services Provided by Information Technology to the Auditing of Internal Controls....Pages 289-313 The Contribution of External Auditors to the Internal Control System....Pages 314-336 Back Matter....Pages 337-365 Annotation Dimitris N. Chorafas defines both auditing and internal control, and explains the value of internal control, why it must be audited, and how it can be most effectively achieved. He addresses top management's accountability for internal control and uses case studies to demonstrate the application of such systems, as well as the importance of sound analysis of the information gathered. Based on an extensive research project in the UK, US, and continental Europe, this book is an invaluable source of practical advice for implementing internal control systems and making existing systems more efficient.