Implementing and Auditing the Internal Control System

Cover......Page 1
Contents......Page 6
List of Figures......Page 12
List of Tables......Page 16
Preface......Page 17
Acknowledgements......Page 22
List of Abbreviations and Acronyms......Page 23
PART I: WHY INTERNAL CONTROL SYSTEMS MUST BE AUDITED......Page 26
Introduction......Page 28
Auditing Defined......Page 30
Auditing as an Indispensable Element of a Management System......Page 33
Senior Management Responsibilities in Connection with Auditing and Internal Controls......Page 37
Value-Added Services to be Provided by Auditing......Page 41
The Role of an Independent Auditing Committee and the Contribution of the Treadway Commission......Page 46
Good Practice Guidelines Regarding Auditing Committee Functions and Responsibilities......Page 49
Introduction......Page 53
'Internal Control' Defined......Page 55
What Constitutes a Sound Internal Control Policy?......Page 59
Steps in Implementing an Internal Control System......Page 61
Improving the Status of Internal Control in Business and Industry......Page 65
What Is Meant by a 'Rigorous Internal Control Solution'?......Page 68
A Practical Example with Internal Control Approaches to Operational Risk......Page 72
Appendix: Definitions of Internal Control by AICPA, Basle Committee, EMI, IIA, and COSO......Page 76
Introduction......Page 79
The Impact of Globalization on Internal Control......Page 80
Regulators Look at Internal Control as a Foundation of Sound Management......Page 83
Important Differences Between Accounting Systems Handicap Global Internal Control and Auditing......Page 87
Internal Control Deficiencies, Conflicts of Interest, and the Massaging of Accounting Data......Page 90
A Threat Curve Which Addresses Our Problems and Their Likelihood......Page 103
Introduction......Page 108
Auditing Responsibilities Prescribed by Securities Laws......Page 110
Agency Costs and the Impairment of Assets......Page 112
Using a Company's Cash Flow for Auditing Reasons......Page 116
The Concept Underpinning Risk-Based Auditing......Page 120
Authority and Responsibility for Risk-Based Auditing Solutions......Page 123
Paying Attention to Information Requirements for Risk-Based Auditing......Page 126
Introduction......Page 130
Discovery is the First Major Step of a Valid Auditing Methodology......Page 131
Auditing Strengths and Weaknesses of an Internal Control System: An Example From a Money Centre Bank......Page 135
The Methods of Internal Control Resemble Those of Military Intelligence......Page 139
Internal Control Intelligence and the Calculation of Assumed Exposure......Page 143
Internal Control Intelligence and Dynamic Computing of Capital Requirements......Page 148
Synergy Necessary Between Business Units to Make Internal Control a Reality......Page 152
PART II: MANAGEMENT APPRAISAL OF AND ACCOUNTABILITY FOR THE INTERNAL CONTROL SYSTEM......Page 156
Introduction......Page 158
Legal Reasons Why Internal Control Must be Managed......Page 159
Effective Internal Control Requires Trustworthy People......Page 165
Internal Control, Product Review, and Risk Assumptions......Page 169
Senior Management Cannot Delegate its Accountability for Internal Control......Page 173
Restructuring is a Critical Element of Financial Innovation......Page 177
Beware of Creative Accounting: it is Poison to Internal Control......Page 180
Introduction......Page 184
Which are the Core Functions of a Financial Institution?......Page 185
A Polyvalent Approach to the Implementation of Internal Control: the Commission Bancaire Directives......Page 188
Why Both a priori and a posteriori Studies Improve Internal Control......Page 190
Do We Need a Separate Department to Look After Compliance? The Case of Two Swiss Banks......Page 197
Management Intent: Its Impact on Internal Discipline and Financial Reporting......Page 201
New Rules of Competition and the Need for Market Discipline......Page 207
Introduction......Page 210
Organizational Solutions for Internal Control at Edward Jones......Page 212
The Process of Internal Control and the Prerequisites for Risk Management......Page 215
Commercial Risk, Financial Risk, and the Tuning of Internal Control......Page 218
Should We Analyze the Behavioural Pattern of Our Traders?......Page 221
Developing and Using a System of Internal Margin Calls......Page 227
Internal Controls Should Highlight Information Technology Failures......Page 231
PART III: CASE STUDIES ON THE IMPLEMENTATION OF INTERNAL CONTROL......Page 236
Introduction......Page 238
Limits, Marking-to-Market, and the Contribution of Internal Control......Page 239
Internal Control and the Role of Benchmarks......Page 244
Answers by Leading Institutions to an Internal Controls and Limits Questionnaire......Page 246
Setting Limits is a Business Requiring Know-how and Imagination......Page 250
The Study of Internal Controls by the European Monetary Institute......Page 253
Advance Notice Can Help in Limiting Future Loss Through Repositioning......Page 256
Introduction......Page 260
Internal Controls and Dynamic Limits Management......Page 261
The Role of Auditing in Controlling the Calculation of Prices and Risk Premiums......Page 266
Internal Controls, Leveraging, and the Evaluation of Risk and Return......Page 270
Should Internal Controls Reflect a Portfolio's Diversification?......Page 275
Internal Controls and Limits for Equity Trading......Page 279
Examining and Implementing Limits in Currency Positions......Page 283
Introduction......Page 287
Long-Termism and Short-Termism in R&D......Page 288
A Methodology for Internal Control Applied to Engineering Design......Page 293
Internal Control's Contribution to the Project Manager's Job......Page 296
Internal Control for Prototypes and for Measurements Connected with Different Projects......Page 301
Design Reviews are Essentially a Process of Rigorous Auditing......Page 305
An Infrastructure for Quality Assurance......Page 309
Introduction......Page 314
Positioning Our Institution to Profit From the Fact that Banking is Information in Motion......Page 317
The Use of Advanced Technology is not a Fad but an Obligation......Page 319
Online Banking and the Auditing of Financial Operations......Page 324
The Effective Use of Information Technology for Internal Control......Page 329
The Regulators Emphasize the Need to Use Technology in an Able Manner......Page 333
Why Auditing Increasingly Depends on Computer Systems......Page 335
Introduction......Page 339
Value-Added Duties Beyond Those Classically Performed by External Auditors......Page 340
What Should be Expected from Auditing Internal Controls by External Auditors?......Page 344
Are Central Bank Examiners Better Positioned in Studying the Effectiveness of Internal Controls?......Page 348
The Concept Behind Outsourcing Internal Auditing and Other Duties......Page 352
A Closer Look at Outsourcing Internal Auditing, its 'Pluses' and 'Minuses'......Page 355
Liabilities Which Might Come the Way of External Auditors......Page 359
Bibliography......Page 362
Appendix of Participating Organizations......Page 364
Index......Page 384