Implementing and auditing the internal control system:
Saved in:
| Main Author: | |
|---|---|
| Format: | Book |
| Language: | English |
| Published: |
Basingstoke [u.a.]
Palgrave
2001
|
| Edition: | 1. publ. |
| Subjects: | |
| Online Access: | Inhaltsverzeichnis |
| Physical Description: | XXIII, 365 S. graph. Darst. |
| ISBN: | 0333929365 |
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Record in the Search Index
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| adam_text | Contents
List of Figures xi
List of Tables xv
Preface xvi
Acknowledgements xxi
List of Abbreviations and Acronyms xxii
PART I WHY INTERNAL CONTROL SYSTEMS MUST
BE AUDITED
1 The Role of Auditing in an Organization 3
Introduction 3
Auditing Defined 5
Auditing as an Indispensable Element of a
Management System 8
Senior Management Responsibilities in Connection
with Auditing and Internal Controls 12
Value Added Services to be Provided by Auditing 16
The Role of an Independent Auditing Committee and
the Contribution of the Treadway Commission 21
Good Practice Guidelines Regarding Auditing
Committee Functions and Responsibilities 24
2 What is Meant by Internal Control ? 28
Introduction 28
Internal Control Defined 30
What Constitutes a Sound Internal Control Policy? 34
Steps in Implementing an Internal Control System 36
Improving the Status of Internal Control in Business
and Industry 40
What Is Meant by a Rigorous Internal Control Solution ? 43
A Practical Example with Internal Control Approaches
to Operational Risk 47
Appendix: Definitions of Internal Control by AICPA,
Basle Committee, EMI, IIA, and COSO 51
v
vi Contents
3 Internal Control and the Globalization of Financial Markets 54
Introduction 54
The Impact of Globalization on Internal Control 55
Regulators Look at Internal Control as a Foundation
of Sound Management 58
Important Differences Between Accounting Systems
Handicap Global Internal Control and Auditing 62
Internal Control Deficiencies, Conflicts of Interest, and
the Massaging of Accounting Data 65
A Threat Curve Which Addresses Our Problems and
Their Likelihood 78
4 New Standards for Auditing Internal Control and the
Use of Risk Based Audits 83
Introduction 83
Auditing Responsibilities Prescribed by Securities Laws 85
Agency Costs and the Impairment of Assets 87
Using a Company s Cash Flow for Auditing Reasons 91
The Concept Underpinning Risk Based Auditing 95
Authority and Responsibility for Risk Based Auditing
Solutions 98
Paying Attention to Information Requirements for
Risk Based Auditing 101
5 A Methodology for Auditing the Internal Control
System 105
Introduction 105
Discovery is the First Major Step of a Valid Auditing
Methodology 106
Auditing Strengths and Weaknesses of an Internal Control
System: An Example From a Money Centre Bank 110
The Methods of Internal Control Resemble Those of
Military Intelligence 114
Internal Control Intelligence and the Calculation of
Assumed Exposure 118
Internal Control Intelligence and Dynamic Computing of
Capital Requirements 123
Synergy Necessary Between Business Units to Make Internal
Control a Reality 127
Contents vii
PART II MANAGEMENT APPRAISAL OF AND
ACCOUNTABILITY FOR THE INTERNAL CONTROL
SYSTEM
6 Senior Management Responsibilities For Internal
Control 133
Introduction 133
Legal Reasons Why Internal Control Must be Managed 134
Effective Internal Control Requires Trustworthy People 140
Internal Control, Product Review, and Risk Assumptions 144
Senior Management Cannot Delegate its Accountability for
Internal Control 148
Restructuring is a Critical Element of Financial Innovation 152
Beware of Creative Accounting: it is Poison to Internal
Control 155
7 Internal Control Implementation Must Focus on Core
Functions 159
Introduction 159
Which are the Core Functions of a Financial Institution? 160
A Polyvalent Approach to the Implementation of Internal
Control: the Commission Bancaire Directives 163
Why Both a priori and a posteriori Studies Improve
Internal Control 165
Do We Need a Separate Department to Look After
Compliance? The Case of Two Swiss Banks 172
Management Intent: Its Impact on Internal Discipline and
Financial Reporting 176
New Rules of Competition and the Need for Market
Discipline 182
8 Establishing an Efficient Internal Control Structure 185
Introduction 185
Organizational Solutions for Internal Control at Edward
Jones 187
The Process of Internal Control and the Prerequisites for
Risk Management 190
Commercial Risk, Financial Risk, and the Tuning of
Internal Control 193
viii Contents
Should We Analyze the Behavioural Pattern of Our Traders? 196
Developing and Using a System of Internal Margin Calls 202
Internal Controls Should Highlight Information
Technology Failures 206
PART III CASE STUDIES ON THE IMPLEMENTATION
OF INTERNAL CONTROL
9 Applying Internal Control to Our Institution s
Limits System 213
Introduction 213
Limits, Marking to Market, and the Contribution of
Internal Control 214
Internal Control and the Role of Benchmarks 219
Answers by Leading Institutions to an Internal Controls
and Limits Questionnaire 221
Setting Limits is a Business Requiring Know how and
Imagination 225
The Study of Internal Controls by the European
Monetary Institute 228
Advance Notice Can Help in Limiting Future Loss
Through Repositioning 231
10 Auditing Counterparty Limits and Trading Limits 235
Introduction 235
Internal Controls and Dynamic Limits Management 236
The Role of Auditing in Controlling the Calculation of
Prices and Risk Premiums 241
Internal Controls, Leveraging, and the Evaluation of
Risk and Return 245
Should Internal Controls Reflect a Portfolio s
Diversification? 250
Internal Controls and Limits for Equity Trading 254
Examining and Implementing Limits in Currency Positions 258
11 An Internal Control System for Engineering Design,
Product Development, and Quality Assurance 262
Introduction 262
Long Termism and Short Termism in R D 263
Contents ix
A Methodology for Internal Control Applied to
Engineering Design 268
Internal Control s Contribution to the Project
Manager s Job 271
Internal Control for Prototypes and for Measurements
Connected with Different Projects 276
Design Reviews are Essentially a Process of Rigorous
Auditing 280
An Infrastructure for Quality Assurance 284
12 Services Provided by Information Technology to the
Auditing of Internal Controls 289
Introduction 289
Positioning Our Institution to Profit From the Fact that
Banking is Information in Motion 292
The Use of Advanced Technology is not a Fad but an
Obligation 294
Online Banking and the Auditing of Financial Operations 299
The Effective Use of Information Technology for Internal
Control 304
The Regulators Emphasize the Need to Use Technology in
an Able Manner 308
Why Auditing Increasingly Depends on Computer Systems 310
13 The Contribution of External Auditors to the Internal
Control System 314
Introduction 314
Value Added Duties Beyond Those Classically Performed
by External Auditors 315
What Should be Expected from Auditing Internal Controls
by External Auditors? 319
Are Central Bank Examiners Better Positioned in Studying
the Effectiveness of Internal Controls? 323
The Concept Behind Outsourcing Internal Auditing and
Other Duties 327
A Closer Look at Outsourcing Internal Auditing, its Pluses
and Minuses 330
Liabilities Which Might Come the Way of External
Auditors 334
x Contents
Bibliography 337
Appendix of Participating Organizations 339
Index 359
List of Figures
1.1 The domains where auditing functions are necessary if
modern business continues to expand 4
1.2 The concepts underpinning internal control and audit tend,
up to a point, to overlap 6
1.3 It is wise to make a distinction between the functions of
auditing and those of internal control 10
1.4 Front desk and back office should be separated, and the
same is true of other functions, but all must be transparent
to auditing 13
1.5 The bifurcation in self assessment through internal control
and auditing 17
2.1 Focal areas of internal control and the impact of internal
and external key factors 30
2.2 The functions of internal control, auditing, accounting,
treasury, and risk management overlap, but also have a
common core 33
2.3 Infrastructure and pillars supporting a valid solution to
internal control 37
2.4 Roles and responsibilities of different agents concerned by
the control of risk 41
2.5 Technological solutions addressed to high grade
professionals must be positioned in an unstructured
information environment 46
2.6 The top four operational risks influence one another in a
significant way 49
3.1 A real time framework for focusing internal control by
country and in a global setting 57
3.2 Four different organizational approaches followed by
credit institutions with regard to internal control and risk
management 61
3.3 The internal control framework of COSO implementation,
as seen by the Federal Reserve Bank of Boston 75
3.4 By ordering the probability associated with different risks,
a threat curve can assists in appreciating their likelihood 79
3.5 Radar chart for off balance sheet risk control to keep top
management alert 81
xi
xii List of Figures
4.1 Assets in the balance sheet and off balance sheet of a
major financial institution 90
4.2 Liabilities in the balance sheet and off balance sheet of
a major financial institution 90
4.3 Seasonally adjusted german M 3 money supply, fluctuation
in the 1990 to 1994 timeframe 94
4.4 High quality means that tolerances are observed at all
times; low quality fails to observe tolerances 97
5.1 Discovery is an analytical process, while legal conclusions
are synthetic and practical 108
5.2 There are three ways of looking at internal control, with
accounting at the kernel and high technology the outer
layer 115
5.3 The internal control intelligence cycle consists of six major
steps 116
5.4 Intraday follow up on exposure, bank wide and
trader by trader 120
5.5 There are common elements in different types of risk:
with new instruments these should be addressed on the
drawing board 124
6.1 The policy of the OTS has borne fruit: no thrift failures
since 1993 138
6.2 The life cycle of business passes through successive phases,
each requiring specific skills 143
6.3 Block diagram of profit and loss (P L) analysis of a profit
centre 146
6.4 Distribution of Daily Trading Revenue (P L) at Credit
Suisse First Boston, 1997 and 1998 151
7.1 Abstraction is the two way interface between complexity
and simplicity 167
7.2 The difference 1 month makes: benchmark yield curves
with 30 year bonds in three G 10 countries: United States 170
7.3 The difference 1 month makes: benchmark yield curves
with 30 year bonds in three G 10 countries:
United Kingdom 171
7.4 The difference 1 month makes: benchmark yield curves
with 30 year bonds in three G 10 countries: Japan 172
7.5 Auditing is a metalayer whose business is rigorous
inspection, not the day to day control of operations 174
7.6 Management intent and strategic planning overlap, but
basically they are different concepts 177
List of Figures xiii
7.7 A feedback mechanism characterizing both engineering
constructs and financial markets, but many bankers lack
this sensitivity 180
8.1 Securum s three layered internal control organization for
credit exposure 186
8.2 Evolution of longer term financial assets v. the trading
portfolio at a money centre bank 197
8.3 SQC chart with tolerance limits and control limits 201
8.4 Average market risks of a money centre bank, over a
period of 2 years 205
9.1 Risk management should be studied in a multidimensional
space, in a manner similar to process control 215
9.2 Four different dimensions of liquidity to be controlled
intraday 218
9.3 A classification of business partners based on sophistication
of client demands and potential risk exposure 226
10.1 A thorough evaluation of VAR requires that three
metalayers work in synergy 239
10.2 The statistical distribution of loans losses classified into
three major categories 243
10.3 Some frightening statistics on equity, assets, and
derivatives exposure by Chase Manhattan 249
10.4 Yield spread average of AAA corporate bonds v. equal
maturity government bonds 251
10.5 An efficient frontier analysis tries to balance risk and
return, eventually leading to portfolio optimization 255
10.6 In mid to late 1995, Cypress Semiconductor lost
60 per cent of its capitalization 257
11.1 Able solutions to R D must have globality, benefit from
technology and standards, and be subject to critical project
revamps 267
11.2 The acceleration in technology characterizing the
mid to late 1990s is expected to continue well into the
twenty first century 272
11.3 According to Jean Monnet, planning for the future should
start at end results level and move toward the beginning 274
11.4 Non seamless interfaces significantly reduce the efficiency
and reliability of engineering work during product transition 279
11.5 The need for design reviews is present in any project 283
11.6 The impact of good management on competitiveness can
best be appreciated in a 3 dimensional frame of reference 285
xiv List of Figures
11.7 Chart for number of defects per unit and adjustments on
an hourly basis, during a week 287
12.1 Investments in information technology: United States v.
Euroland, 1993 and 1999 291
12.2 Technology supporting four different banks which offer
personal banking services 295
12.3 Grand design of an IT solution addressing a range of
functional and operational characteristics 297
12.4 A bank s financial network and effective management of
client accounts 300
12.5 The distribution of IT investments and supported
functionality is not keeping pace with end user demands. 302
12.6 Financial instruments become complex because they can
be combined in many and varied ways 306
12.7 Management information needed to do business v. data
which is massively produced 312
13.1 The Hampel Report recommended adding new areas to
internal control 316
13.2 Rigorous evaluation of exposure, study of business
opportunity, and analysis of business intelligence rest on
four pillars 320
13.3 A three tier and two tier model in bank supervision 324
13.4 Rating the quality of internal auditing and/or outsourced
services using confidence intervals 332
List of Tables
2.1 The top dozen operational risks 48
3.1 Comparison of some of the outstanding differences
between the US GAAP and Italian GAAP 66
6.1 NPVR limits in connection to changes in interest rates 139
7.1 Net asset value on year to year basis through two different
trading strategies 169
7.2 A bank s exposure to loans and derivatives risks, standard
VAR. v. stress analysis 175
7.3 Reserve requirements for loans to sovereigns, banks,
corporate clients, and securitized instruments based on
ratings by independent agencies 181
9.1 VAR in Commerzbank s trading portfolio, 1997 223
9.2 VAR in Commerzbank s trading portfolio, 1996, and
1997 1996 comparison 224
10.1 Demodulated derivatives exposure compared to equity and
assets of major credit institutions, as of 31 March 1999 248
xv
|
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| id | DE-604.BV013838041 |
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| indexdate | 2024-07-09T18:52:56Z |
| institution | BVB |
| isbn | 0333929365 |
| language | English |
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| spelling | Chorafas, Dimitris N. 1926-2014 Verfasser (DE-588)107941961 aut Implementing and auditing the internal control system Dimitris N. Chorafas 1. publ. Basingstoke [u.a.] Palgrave 2001 XXIII, 365 S. graph. Darst. txt rdacontent n rdamedia nc rdacarrier Auditing, Internal Internes Kontrollsystem (DE-588)4125994-4 gnd rswk-swf Unternehmen (DE-588)4061963-1 gnd rswk-swf Internes Kontrollsystem (DE-588)4125994-4 s Unternehmen (DE-588)4061963-1 s DE-604 HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=009465029&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Chorafas, Dimitris N. 1926-2014 Implementing and auditing the internal control system Auditing, Internal Internes Kontrollsystem (DE-588)4125994-4 gnd Unternehmen (DE-588)4061963-1 gnd |
| subject_GND | (DE-588)4125994-4 (DE-588)4061963-1 |
| title | Implementing and auditing the internal control system |
| title_auth | Implementing and auditing the internal control system |
| title_exact_search | Implementing and auditing the internal control system |
| title_full | Implementing and auditing the internal control system Dimitris N. Chorafas |
| title_fullStr | Implementing and auditing the internal control system Dimitris N. Chorafas |
| title_full_unstemmed | Implementing and auditing the internal control system Dimitris N. Chorafas |
| title_short | Implementing and auditing the internal control system |
| title_sort | implementing and auditing the internal control system |
| topic | Auditing, Internal Internes Kontrollsystem (DE-588)4125994-4 gnd Unternehmen (DE-588)4061963-1 gnd |
| topic_facet | Auditing, Internal Internes Kontrollsystem Unternehmen |
| url | http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=009465029&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA |
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