For example,

internal control is needed to provide reasonable

assurance that all sales are recorded, all cash receipts
are collected and properly deposited in the
organizations bank accounts, and all assets and
liabilities are properly valued. Management has the
responsibility to design, implement, and maintain
effective internal control over financial reporting.
Management of public companies will also evaluate
and publicly report on the effectiveness of the
companys internal control. The external auditor needs
to understand a clients internal control over financial
reporting and how management has fulfilled its internal
control responsibilities. This chapter helps you identify
aspects of a clients internal controls that you need to
understand in order to plan and conduct an audit.

Through studying this chapter, you will be able to achieve these learning objectives:
1. Articulate the importance of internal control over
financial reporting for organizations and their
external auditors.
2. Define internal control as presented in COSOs
updated Internal ControlIntegrated Framework
and identify the components of internal control.
3. Describe the control environment component of
internal control, list its principles, and provide
examples of each principle.
4. Describe the risk assessment component of internal
control, list its principles, and provide examples of
each principle.
5. Describe the control activities component of
internal control, list its principles, and provide
examples of each principleSource: Karla M. Johnstone
University of WisconsinMadison

Audrey A. Gramling
Bellarmine University
Larry E. Rittenberg