1. Control and Accounting Information Systems
Chapter 7

2. Learning Objectives
Explain basic control concepts and why computer control and security are important.
Compare and contrast the COBIT, COSO, and ERM control frameworks.
Describe the major elements in the internal environment of a company.
Describe the four types of control objectives that companies need to set.
Describe the events that affect uncertainty and the techniques used to identify them.
Explain how to assess and respond to risk using the Enterprise Risk Management model.
Describe control activities commonly used in companies.
Describe how to communicate information and monitor control processes in organizations.

3. Why Is Control Needed?
Any potential adverse occurrence or unwanted event that could be injurious to either the accounting information system or the organization is referred to as a threat or an event.
The potential dollar loss should a particular threat become a reality is referred to as the exposure or impact of the threat.
The probability that the threat will happen is the likelihood associated with the threat

4. A Primary Objective of an AIS
Is to control the organization so the organization can achieve its objectives
Management expects accountants to:
Take a proactive approach to eliminating system threats.
Detect, correct, and recover from threats when they occur.

5. Internal Controls
Processes implemented to provide assurance that the following objectives are achieved:
Safeguard assets
Maintain sufficient records
Provide accurate and reliable information
Prepare financial reports according to established criteria
Promote and improve operational efficiency
Encourage adherence with management policies
Comply with laws and regulations

6. Functions of Internal Controls
Preventive controls
Deter problems from occurring
Detective controls
Discover problems that are not prevented
Corrective controls
Identify and correct problems; correct and recover from the problems

7. Control Frameworks COBIT COSO COSO-ERM Framework for IT control
Framework for enterprise internal controls (control-based approach)
COSO-ERM
Expands COSO framework taking a risk-based approach

8. COBIT Framework Current framework version is COBIT5
Based on the following principles:
Meeting stakeholder needs
Covering the enterprise end-to-end
Applying a single, integrated framework
Enabling a holistic approach
Separating governance from management

9. COBIT5 Separates Governance from Management

10. Components of COSO Frameworks
COSO-ERM
Control (internal) environment
Risk assessment
Control activities
Information and communication
Monitoring
Internal environment
Objective setting
Event identification
Risk assessment
Risk response
Control activities
Information and communication
Monitoring

11. Internal Environment
Management’s philosophy, operating style, and risk appetite
Commitment to integrity, ethical values, and competence
Internal control oversight by Board of Directors
Organizing structure
Methods of assigning authority and responsibility
Human resource standards

12. Objective Setting Strategic objectives Operations objectives
High-level goals
Operations objectives
Effectiveness and efficiency of operations
Reporting objectives
Improve decision making and monitor performance
Compliance objectives
Compliance with applicable laws and regulations

13. Event Identification
Identifying incidents both external and internal to the organization that could affect the achievement of the organizations objectives
Key Management Questions:
What could go wrong?
How can it go wrong?
What is the potential harm?
What can be done about it?

14. Risk Assessment Risk is assessed from two perspectives: Likelihood
Probability that the event will occur
Impact
Estimate potential loss if event occurs
Types of risk
Inherent
Risk that exists before plans are made to control it
Residual
Risk that is left over after you control it

15. Risk Response Reduce Accept Share Avoid
Implement effective internal control
Accept
Do nothing, accept likelihood and impact of risk
Share
Buy insurance, outsource, or hedge
Avoid
Do not engage in the activity

16. Control Activities Proper authorization of transactions and activities
Segregation of duties
Project development and acquisition controls
Change management controls
Design and use of documents and records
Safeguarding assets, records, and data
Independent checks on performance

17. Segregation of Duties

18. Monitoring Perform internal control evaluations (e.g., internal audit)
Implement effective supervision
Use responsibility accounting systems (e.g., budgets)
Monitor system activities
Track purchased software and mobile devices
Conduct periodic audits (e.g., external, internal, network security)
Employ computer security officer
Engage forensic specialists
Install fraud detection software
Implement fraud hotline

19. Key Terms Threat or Event Exposure or impact Likelihood
Internal controls
Preventive controls
Detective controls
Corrective controls
General controls
Application controls
Belief system
Boundary system
Diagnostic control system
Interactive control system
Audit committee
Foreign Corrupt Practices Act (FCPA)
Sarbanes-Oxley Act (SOX)
Public Company Accounting Oversight Board (PCAOB)
Control Objectives for Information and Related Technology (COBIT)
Committee of Sponsoring Organizations (COSO)
Internal control-integrated framework (IC)
Enterprise Risk Management Integrated Framework (ERM)
Internal environment

20. Key Terms (continued) Risk appetite Policy and procedures manual
Background check
Strategic objectives
Operations objectives
Reporting objectives
Compliance objectives
Event
Inherent risk
Residual risk
Expected loss
Control activities
Authorization
Digital signature
Specific authorization
General authorization
Segregation of accounting duties
Collusion
Segregation of systems duties
Systems administrator
Network manager
Security management
Change management
Users
Systems analysts
Programmers
Computer operators
Information system library

21. Key Terms (continued) Postimplementation review Data control group
Systems integrator
Analytical review
Audit trail
Computer security officer (CSO)
Chief compliance officer (CCO)
Forensic investigators
Computer forensics specialists
Neural networks
Fraud hotline
Data control group
Steering committee
Strategic master plan
Project development plan
Project milestones
Data processing schedule
System performance measurements
Throughput
Utilization
Response time