Entity Level Control Objectives Checklist Real Audit Simulation

Entity level controls are policies, guidelines, and directives established by management and approved by the board of directors that affect a wider audience than internal controls tailored to a single process.

Information and communication, disciplinary procedures and more all fall under entity-level controls. In this article we’ll assess these controls against COSO 2013’s pillars and principles to gauge their design and operational effectiveness.

Design
Design of entity-level controls is an integral component of internal control evaluation. If their design is weak or inadequate, material weaknesses could result in adverse or qualified opinions for financial statements of a company and increased operating expenses that diminish shareholder value.

The principles underlying the COSO framework can be applied to designing entity-level controls. It consists of five components that help design effective entity-level controls: control environment, risk assessment, monitoring, reporting, and remediation. Of these five, two are fundamental to an effective internal control system by helping identify and reduce risks while monitoring is key for detecting material misstatements within financial statements.

Identification and categorization of risks is necessary to assessing their significance for business processes within an entity. Risks could range from being pervasive and longstanding, or have an immediate impact on achieving predetermined objectives. Focusing the audit on those areas requiring the most attention allows auditors to direct more resources toward those that need attention most quickly; the results should then be documented and presented to management for review and approval.

Operation
Entity-level controls that operate efficiently help to detect misstatements early, which reduces the need for extensive substantive audit testing, thus saving both time and money in auditing services.

Management must maintain an effective control environment to ensure this occurs. This involves five components: control environment, risk assessment, monitoring, communication and information. Although each of these are crucially important, communication and information remains the most essential.

This includes clearly outlining the roles and responsibilities of those charged with each control activity, communicating these responsibilities to employees, and explaining why this control is necessary. Furthermore, staff should know how to detect breakdowns in internal controls systems quickly so they can notify their supervisors who can then quickly take corrective measures; thus limiting errors caused by human error (for instance entering incorrect data or forgetting to record transactions). This helps minimize human-caused mistakes which lead to costly mistakes like these arising as a result.

Monitoring
Monitoring is a fundamental element of an effective internal control system, serving as the means by which each control can be identified and reported on against its stated objective. Proper handling requires high degrees of competence and knowledge. Otherwise, monitoring may produce vast reams of unusable data without providing meaningful actionable insight for improvement.

An effective monitoring program requires understanding who will use its results: project participants, senior management in implementing organizations or government departments, donors or funding bodies as well as members of the general public.

To develop an effective monitoring program, it is crucial to link the controls of a Critical Management Module with the risk register and establish an enterprise-wide position. This enables management to synthesis information for making management decisions while assuring risks identified are properly aligned to enterprise context and countermeasures are approved to address them. Internal audit functions play an integral part in overseeing this continuous process and making sure assessments reflect reality accurately.

Reporting
Entity-level controls serve to ensure the implementation of management directives pertaining to an entire entity. They consist of various measures like control environment evaluation, risk evaluation, linking risks with objectives management and overseeing control activities.

Entity-level control risk evaluation worksheets enable you to identify and assess the current state of critical controls within an enterprise context, then link them with appropriate risk factors and approve effective countermeasures.

This synthesis is made easier due to the CMM’s integration with risk registers at an entity level, making risk factors a key element in assessing controls and helping ensure accurate assessments. Furthermore, you can link risk factors directly to an internal control framework including entity-level controls – something experts often suggest can reduce testing at assertion level.