Companies can gain efficiencies by implementing effective monitoring of their internal control processes. Required a. Explain the

Question:

Companies can gain efficiencies by implementing effective monitoring of their internal control processes.

Required
a. Explain the importance of monitoring and identify the two major types of monitoring controls.
b. What comfort can the auditor get about the effectiveness of other controls in operation by testing the effectiveness of monitoring controls? Cite specific examples.
c. Identify (a) the important monitoring controls, and (b) what management might learn about the failure of other controls through the operations of monitoring controls that might be utilized in each of the following situations:
• A convenience store such as a 7-Eleven
• A chain restaurant such as Olive Garden
• A manufacturing division making rubberized containers for the consumer market
• A new Web-based book seller associated with a major book chain such as Barnes & Noble

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a Monitoring controls are often difficult to understand However the concept is fairly simple Monitoring is a control that management the board and others establish to provide feedback on the effectiveness of operations and the effectiveness of other controls that have been established to accomplish financial reporting objectives Monitoring controls provide feedback of potential breakdowns of other controls in a timely fashion such that timely corrective action can take place Monitoring can take place as Separate Evaluations This includes management and employee analysis of design and operation of controls on a periodic basis Ongoing Monitoring This is a process where specific monitoring procedures are built into computer applications or management review of data control procedures or operations that provides either direct or indirect information about the current operation of controls Examples of monitoring controls include Periodic internal audit of major processes Exception reports that indicate that operations are different from that budgeted or expected given current economic conditions Reconciliation controls that identify significant changes or deviations from expectations Periodic review of controls by those in supervisory positions Graphical analysis of sales by time period with an emphasis on identifying significant unusual sales made near the end of a quarter b If a properly designed control system the auditor can take comfort in the operation of monitoring controls if The auditor has already gained an understanding of the design and operation of the processing and other reporting controls The auditor has assurance that the monitoring controls are soundly designed and exceptions are followed up promptly to determine their cause Corrective actions are taken as necessary If monitoring controls are effective ...View the full answer

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Ravi Dutt

Myself Ravi Dutt, I have completed my bachelor's and master's degree in physics. Currently, I am a research scholar in physics. I am tutoring physics and mathematics since 2011. My method of tutoring is to modify theory and concepts by self-made questions to understand physics and mathematics better.

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