9 - 1 What is the purpose of an ICS? l First, what is it?? Policies and procedures established to provide reasonable assurance that the entities specific objectives will be achieved (e.g., management’s objectives) l Auditing answer might be to determine the nature, timing and extent of substantive tests

9 - 2 Objectives of an ICS  Accurate reliable FS’s  Safeguarding of assets  Adherence to management’s policies and procedures AND Promotion of operational efficiency

9 - 3 Inherent limitations Errors -- Mistakes, misjudgments FRAUD -- Collusion, management override

9 - 4 Elements of an ICS Control Environment (a general umbrella category) BOD’s/ Audit committee Internal Audit Organization Structure Mgt. attitude and awareness Assignment of authority Personnel policies

9 - 5 Elements of an ICS – risk assessment “Management’s identification and analysis of risks relevant to GAAP FS’s” Any risks affecting URACECV Identify potential risk factors Identify likelihood of occurrence Mitigate them

9 - 6 Elements of an ICS – Control activities These procedures provide reasonable assurance of the ICS objectives l Transactions executed i/a/w/ management’s authority (examples: credit, returns, etc) l Transactions that are properly recorded l Access to assets – custody l Periodic comparison of physical assets to recorded assets (examples: bank rec., invty. count, etc) l Segregation of duties

9 - 7 Elements of an ICS – Information & Communication l Methods and records that are set up to record transactions (broken down by operating cycles). These methods and records relate to URACECV.

9 - 8 Elements of an ICS – Monitoring Management’s continuous assessment of the ICS and that control procedures (AKA control activities) are IN PLACE operating EFFECTIVELY.