Entity-Level Risk Assessment Worksheets

Entity-Level Risk Assessment Worksheets
© 2009 Crowe Horwath LLP. All rights reserved. This template is PROPRIETARY and CONFIDENTIAL and may not be duplicated, redistributed, or displayed without the express written consent of Crowe Horwath LLP.
ENTITY-LEVEL CONTROL RISK ASSESSMENT:
The entity-level control risk assessment worksheets were derived from the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) model, which outlines five components of internal control. In an effective internal control system, the following five
components work to support the achievement of an institution’s mission, strategies, and related business objectives:
1. Control environment, which establishes the foundation for the internal control system by providing fundamental discipline and structure;
2. Risk assessment, which involves the identification and analysis by management – not the internal auditor – of relevant risks to achieving
predetermined objectives;
3. Control activities, or the policies, procedures, and practices that ensure that management objectives are achieved and risk mitigation
strategies are carried out;
4. Information and communication, which supports all other control components by communicating control responsibilities to employees
and by providing information in a form and time frame that allows people to carry out their duties; and
5. Monitoring, which covers the external oversight of internal controls by management or other parties outside the process, or the application
of independent methodologies, such as customized procedures or standard checklists, by employees within a process.
The Toolkit further expands the COSO entity-level control risk assessment to include two additional control risk areas, identified by Crowe:
6. Period-end financial reporting, which involves the process by which financial statements are prepared internally in accordance with
accounting principles generally accepted in the United States of America; and
7. Budgeting, which includes the process in place through which management and those charged with governance use budgetary controls to
review financial statement data.
SUMMARY OF THE FIVE-STEP PROCESS

Step # Procedure Description
(1) Review checklist Review, scan, and consider the listing of prepopulated controls.
(2) Document controls Complete documentation and write up controls specifically within your organization.
(3) Evaluate design Consider whether the controls in place are designed properly.
(4) Corroborate implementation Verify that key controls (which are properly designed) exist; consider supporting documentation.
(5) Test operating effectiveness * Sample test key controls to determine whether they are functioning effectively as designed.
* Generally performed only by internal auditors.
9
Entity-Level Control Environment
Instructions
PRINCIPLE 1. COMMUNICATION AND ENFORCEMENT OF INTEGRITY AND ETHICAL VALUES
Control attribute: Management has developed a clearly articulated statement of ethical values that is understood at all levels of the organization.
Example Control (1) Document Actual Controls (2) (3) (4) (5)
The entity has developed a clearly articulated statement of ethical values

that is understood at all levels of the organization.
The entity has a formal code of conduct, which reflects the ethical values EXAMPLE - The organization has developed a
of the entity, guides employees in making appropriate decisions, and has code of conduct that is available to all employees
been communicated to employees. via the organization's intranet.
(For smaller entities that do not have a written code of conduct.) The
entity has developed a culture that emphasizes the importance of
integrity and ethical behavior through oral communication and by
management example.
Control attribute: Processes are in place to monitor adherence to principles of sound integrity and ethical values.
Employees in senior management and the accounting/finance function,

as well as others in control-sensitive areas, periodically certify that they
are aware of and in compliance with the entity's code of conduct.
Employees are encouraged and given the means to communicate

concerns, anonymously if preferred, about potential violations of the
entity's code of conduct, without fear of retribution (i.e., a whistle-blower
program).
The CEO and senior management demonstrate the importance of sound

integrity and ethical values to their employees, such as in day-to-day
actions and decisions, interactions with customers, suppliers, and
external parties, performance appraisals and incentives, and intolerance
of ethical violations.
Control attribute: Deviations from sound integrity and ethical values are identified in a timely manner and addressed and remedied at appropriate levels
within the entity.
10
The entity has policies and procedures regarding remedial actions to be
taken in response to deviations from sound integrity and ethical values
or violations of the entity's code of conduct. (Note: Examples of
deviations include departures from the entity's policies and procedures,
unethical behavior, illegal acts, and allegations of or actual fraud.)
PRINCIPLE 2A. PARTICIPATION OF THE BOARD OF DIRECTORS (FOR ENTITIES WITH A BOARD
OF DIRECTORS)
Control attribute: The board of directors has defined and communicated authorities retained at the board level and those related to management.
Corporate bylaws and/or charter(s) outlining the responsibilities of the
board and its committees have been created.
The board and its committees have the necessary authority to fulfill their
responsibilities.
The board and its committees use their charter(s) and/or standard
meeting agendas to ensure that they are appropriately discharging their
responsibilities.
Control attribute: The board of directors has a critical mass of members who are independent directors.
The board comprises qualified individuals who have appropriate

experience and are knowledgeable about the entity's products, services,
business environment, and risks.
Board members are sufficiently independent to challenge management's
judgments and decisions.
Control attribute: The board of directors actively evaluates and monitors risk of management override of internal controls and considers risks affecting
the reliability of financial reporting.
The board meets with appropriate frequency to adequately discharge its
responsibilities.
The board receives detailed reports containing appropriate information
sufficiently in advance of each meeting.
11
The board is timely and fully apprised of sensitive information,
investigations, and improper acts (e.g., significant litigation,
investigations of regulatory agencies, or misuse of assets).
The board is sufficiently engaged to scrutinize the activities of

management, ask difficult questions, and challenge management's
judgments and decisions.
Control attributes: The composition, responsibilities, and activities of the audit committee allow it to sufficiently fulfill its responsibilities.
The audit committee has at least three members, each of whom is

independent and financially literate. One or more members of the audit
committee has financial reporting expertise.
The audit committee has a charter that articulates its responsibilities.
The audit committee oversees the work of both internal and external
auditors.
The audit committee has the exclusive authority to engage, replace, and
determine the compensation of the external audit firms.
The audit committee meets with sufficient frequency to adequately
discharge its responsibility.
The audit committee performs a review of the annual financial

statements with the outside auditors.
The audit committee reviews policies and procedures used by
management for determining significant estimates, including key
assumptions.
During its meetings, the audit committee maintains an appropriate level

of skepticism and raises probing and challenging questions with
management and the auditor, including questions related to critical
accounting policies, judgments, estimates, internal control over financial
reporting, and other significant matters. Relevant issues are pursued
until satisfactorily resolved.
The audit committee considers information obtained from the entity's
whistle-blower program.
The audit committee meets privately with internal and external auditors
to discuss relevant matters.
The audit committee interacts with regulatory auditors, as necessary.
Annually, audit committee members certify their compliance with the
entity's ethical guidelines and independence rules.
12
PRINCIPLE 2B. PARTICIPATION OF THOSE CHARGED WITH GOVERNANCE (FOR ENTITIES WITHOUT A
BOARD
OF DIRECTORS)
Control attribute: The independence, experience, and organizational stature of those charged with governance allow them to effectively govern the entity.
Those charged with governance are sufficiently independent of

management to challenge management's practices, decisions, and
financial reporting practices.
Those charged with governance have sufficient organization stature to

challenge management's practices, decisions, and financial reporting
practices.
Those charged with governance have sufficient knowledge of the entity,
its environment, its business risks, and its financial reporting practices.
13
Control attribute: The information available to, extent of involvement of, and scrutiny of activities by those charged with governance is sufficient for them
to govern the entity.
Those charged with governance meet with appropriate frequency to
adequately discharge their responsibilities.
Those charged with governance receive detailed reports containing
appropriate information sufficiently in advance of each meeting.
Those charged with governance review policies and procedures used by

management for determining significant estimates, including key
assumptions.
Those charged with governance consider information obtained from the
entity's whistle-blower program.
Those charged with governance are timely and fully apprised of

sensitive information, investigations, and improper acts (e.g., significant
litigation, investigations of regulatory agencies, defalcations,
embezzlement, or misuse of assets, violations of insider trading rules,
political payments, illegal payments).
Control attribute: Those charged with governance raise and pursue questions sufficiently for them to govern the entity.
Those charged with governance are sufficiently engaged to scrutinize the

activities of management, ask difficult questions, and challenge
management’s judgments and decisions.
Those charged with governance pursue questions raised until
satisfactorily resolved.
Control attribute: Those charged with governance interact with internal and external auditors sufficient for them to govern the entity.
Those charged with governance oversee the work of both internal and
external auditors.
Those charged with governance meet with external auditors to discuss

relevant matters, such as audit results, management letters, and letters of
auditors' responsibility, including private meetings without
management's participation.
Those charged with governance meet with internal auditors to discuss

relevant matters, including private meetings without management's
participation.
14
Those charged with governance interact with regulatory auditors, as
necessary.
15
PRINCIPLE 3. MANAGEMENT'S PHILOSOPHY AND OPERATING STYLE
Control attribute: Management’s philosophy and operating style emphasize reliable financial reporting.
Management emphasizes the importance of minimizing risks related to

financial reporting in its interaction with those involved in the financial
reporting process Management’s
Control attribute: and its dealingsattitude
with others.
supports a disciplined, objective process in selecting accounting principles and developing accounting
estimates.
Management approves large or unusual transactions.
Management participates in the establishment of accounting for

nonroutine or complex transactions or significant estimates requiring
substantial judgment.
Control attribute: Management has established and clearly articulated financial reporting objectives, including those related to internal control over
financial reporting.
Management establishes and articulates financial reporting objectives,
including those related to complete, accurate, and fair financial
reporting.
Management supports correct financial reporting and does not view it as
something to be manipulated or managed.
PRINCIPLE 4. ORGANIZATIONAL STRUCTURE
Control attribute: Management has established appropriate lines of financial reporting for each functional area and business unit in the organization.
Management has established an organizational structure indicating roles

and reporting lines for all employees, including those involved in
Control attribute: Management maintains an organizational structure that facilitates effective reporting and other communications about internal control
over financial reporting.
Key areas of authority and responsibility are identified, and suitable
lines of reporting are established.
16
Management periodically assesses the number of people and necessary
skills needed in the accounting department.
A mechanism exists to ensure that deficiencies in internal control are
communicated to appropriate management personnel.
PRINCIPLE 5. FINANCIAL REPORTING COMPETENCIES
Control attribute: The entity identifies competencies that support accurate and reliable financial reporting.
The entity maintains formal job descriptions that clearly outline the
required duties and responsibilities for key positions, including financial
reporting positions.
Control attribute: The entity employs or otherwise retains individuals who possess the required competencies related to financial reporting.
Before hiring for key financial positions, management establishes and

agrees on the knowledge, skills, and abilities needed to effectively carry
out associated responsibilities.
Management supplements in-house financial reporting competencies, as
needed, with outside specialists.
Control attribute: The entity regularly evaluates and maintains needed competencies.
Competencies of individuals serving in key financial reporting roles are

periodically evaluated by those charged with governance (or the board
or audit committee).
Management periodically reviews and evaluates employees relative to

their assigned roles to determine whether the employees' skills are
appropriate for their current job responsibilities.
PRINCIPLE 6. AUTHORITY AND RESPONSIBILITY
Control attribute: The board of directors oversees management’s process for defining responsibilities for key financial reporting roles.
17
For key financial reporting positions, those charged with governance (or
the board or audit committee) review management's description of the
position's responsibilities and authorities.
Control attributes: The CEO and senior management maintain responsibility for sound internal control over financial reporting, including both initiating
and maintaining the program. Senior and functional management are responsible for ensuring all employees understand their responsibilities for
achieving financial reporting objectives through adherence to internal control policies and procedures. The assignment of authority and responsibility
includes appropriate limitations.
There is clear assignment of responsibility and authority for decision
making with respect to areas with financial reporting significance.
The assignment of authority and responsibility also includes limitations.
PRINCIPLE 7. HUMAN RESOURCES POLICIES AND PRACTICES AND COMMITMENT TO COMPETENCE

Control attribute: Management has established human resources practices that demonstrate its commitment to integrity, ethical behavior, and
competence.
The entity has employee handbooks (or equivalent) that adequately
describe human resources policies and practices.
The entity periodically updates materials outlining its human resources
policies and practices.
Control attribute: Employee recruitment and retention for key financial positions is guided by the principles of integrity and by the necessary
competencies associated with the positions.
Management reviews resumes and performs reference checks in
considering candidates for key financial reporting positions.
For positions with high-level responsibility, background checks are
performed.
Control attribute: Management supports employees by providing access to the tools and training needed to perform their financial reporting roles.
Training and awareness programs are provided to promote ethical
behavior.
Financial reporting training is provided to employees involved in the
financial reporting process.
18
Control attribute: Employee performance evaluations and the entity’s compensation practices, including those affecting top management, support the
achievement of financial reporting objectives.
All personnel (regardless of organizational status) receive a periodic
performance review and appraisal, and the results are well documented.
Exit interviews include inquiries about concerns related to integrity and
ethical values, financial reporting, and internal control.
Those charged with governance (or the board or audit committee)

review management compensation plans to determine whether the plans
create an inappropriately high risk of financial reporting misstatements.
Management evaluates the sufficiency and competency of personnel

involved in recording and reporting financial information. (Note:
Matters of evaluation may include technical skills, nature and frequency
of training, ability to identify issues, ability to articulate positions, and
ability to stay abreast of financial reporting developments.)
19
Entity-Level Risk Assessment
Instructions
PRINCIPLE 8. FINANCIAL REPORTING OBJECTIVES, & PRINCIPLE 9. FINANCIAL REPORTING RISKS
Control attributes: Financial reporting objectives are consistent with generally accepted accounting principles (GAAP). The accounting principles selected
are appropriate in the circumstances.
Management has a defined process for identifying internal risks relevant

to the preparation of financial statements in conformity with GAAP,
such as account characteristics, business process characteristics, and
entity-wide factors.
Management has a defined process for identifying external risks relevant

to the preparation of financial statements in conformity with GAAP,
such as economic, competitive, and industry conditions, regulatory and
political environment, changes in technology, supply sources, customer
demands, or creditor requirements.
Once risks relevant to the preparation of financial statements in

conformity with GAAP are identified, management assesses their
significance, the likelihood of occurrence, and how they should be
managed.
Management updates its risk assessment on a periodic basis.
Key finance personnel periodically meet with executive management, IT

personnel, HR personnel, and legal counsel to identify issues that may
affect financial reporting.
PRINCIPLE 10. FRAUD RISK
Control attribute: The entity’s assessment of fraud risks considers incentives and pressures, attitudes, and rationalizations, as well as opportunity to
commit fraud.
17
Those charged with governance (or the board or audit committee) and
management review the entity's compensation and performance
evaluation programs to identify potential incentives and pressures for
employees to commit fraud.
Control attribute: The entity’s assessment considers risk factors that influence the likelihood of someone committing a fraud and the impact of a fraud on
Management conducts a periodic fraud risk assessment to identify the

various ways that fraud and misconduct can occur, and documentation
of this assessment is maintained.
Management considers how an individual might seek to circumvent or
override controls intended to prevent and detect fraud.
Management uses information technology tools including security

systems, fraud detection and monitoring systems, and incident tracking
systems to identify and manage fraud risk.
Control attribute: The responsibility and accountability for fraud policies and procedures reside with the management of the business or function in
which the risk resides.
The entity maintains an incident investigation and remediation system

that includes a tracking mechanism to allow management to report on
material fraud events.
Internal auditors incorporate the results of the fraud risk assessment into
their internal audit plan.
18
Entity-Level Information and Communication
PRINCIPLE 15. FINANCIAL REPORTING INFORMATION, & PRINCIPLE 16. INTERNAL CONTROL
Instructions
INFORMATION
Control attributes: Data underlying financial statements are captured (optimally, at the source) completely, accurately, and timely. Information systems
produce information that is timely, current, accurate, and accessible. The quality of system information is reviewed periodically to assess its reliability
and timeliness in meeting the company’s internal control objectives.
Management periodically assesses the sufficiency of its information

systems to capture and report data that are timely, current, accurate, and
accessible.
Management periodically assesses data reported to determine whether

such data are sufficient to meet its financial reporting objectives. The
assessment may include the following:
- timeliness and accuracy of the data;
- accessibility of the data;
- nature of the data, including sufficiency of financial, operating, and
external data; and
- ability to trigger exception resolution and root cause analysis.
PRINCIPLE 17. INTERNAL COMMUNICATION
Control attribute: Management communicates to all personnel, particularly those in roles affecting financial reporting, that internal control over financial
reporting must be taken seriously.
Management communicates information about the entity's financial

reporting objectives, relevant internal control policies and procedures,
and related individual responsibilities via broadcast E-mails, conference
calls, or Webcasts to reinforce the entity's commitment to internal
control, including updates on internal and external matters.
19
An intranet site or other communication tool is maintained for
disseminating information, including information about internal control
over financial reporting. This Web site or tool also contains the entity's
code of conduct and related content dealing with integrity and ethical
values.
Control attribute: Open channels for communications exist between management and the board of directors so that both have information needed to
fulfill their roles with respect to financial reporting objectives.
The CFO reviews and discusses financial information and other

information with those charged with governance (or the board or audit
committee).
The entity makes widely available information on how to access and
submit a matter using the entity's whistle-blower program.
Control attribute: Separate lines of communication are in place and serve as a “fail-safe” mechanism in case normal channels are inoperative or
ineffective.
The entity provides for alternative reporting lines such as

coaching/mentoring relationships in the event that communicating
through the normal reporting lines is ineffective.
Control attribute: The board has access to information sources outside of management, on a regular basis and as needed, including access to the external
auditors, the internal auditors, and other relevant parties (such as regulatory authorities).
The board or audit committee consults with outside advisors whenever
it believes outside expertise is necessary.
20
PRINCIPLE 18. EXTERNAL COMMUNICATION
Control attribute: Open channels for external communication exist to allow input from customers, consumers, end users, suppliers, external auditors,
regulators, financial analysts, and others, and provide management and the board with important information on the effectiveness of internal control
over financial reporting.
The entity makes a whistle-blower program available to external parties,
such as customers, suppliers, vendors, and others.
The entity surveys external parties, such as customers, suppliers,

vendors, and others on their perception of the integrity and ethical
values of personnel.
Control attribute: The achievement of internal control over financial reporting is assessed, where required by external auditors, and the assessment is
formally communicated to management and the board.
Management and the external auditor address with those charged with
governance (or the board or audit committee) the external auditor's
findings and management's proposed resolutions.
21
Entity-Level Monitoring
Instructions
PRINCIPLE 19. ONGOING AND SEPARATE EVALUATIONS
Control attribute: Ongoing monitoring is built into operations throughout the entity.
Management compares actual performance against budget, and

variances are investigated to determine whether there are possible
errors, fraud, or internal control problems.
Control attribute: Evaluations provide an objective consideration of the overall internal control over financial reporting.
Management has established normal, recurring supervisory activities,

consisting of metrics about controls in processes, and current
performance is regularly tracked and compared with target performance.
An internal audit department exists that is appropriately independent of

management (or other testing function such as loan review or
compliance).
Reports from regulators or other third parties are reviewed to determine
whether they indicate possible deficiencies in internal control.
Customer complaints are reviewed to determine whether they indicate
possible deficiencies in internal control.
Control attribute: The evaluator understands the components being evaluated and how they relate to the activities supporting the reliability of financial
reporting.
Internal audit / compliance testing staff are qualified and have
appropriate knowledge of the entity.
Control attribute: Management receives feedback on the effectiveness of internal control over financial reporting.
Results of control monitoring and audit activities are reported to

management.
Control attribute: Management varies the scope and frequency of separate evaluations depending on the significance of risks being controlled, the
importance of the controls in mitigating those risks, and the overall effectiveness of ongoing monitoring.
22
Internal audit / compliance testing annual plans include a risk analysis
of all significant operating and reporting areas of the entity, as a means
to prioritize efforts for the year.
23
PRINCIPLE 20. REPORTING DEFICIENCIES
Control attribute: Findings of internal control deficiencies are reported to the individual who owns the process and related controls, and who is in
position to take corrective actions. Findings also are reported to at least one level of management above the process owner.
The entity has established a practice requiring all deficiencies (from any
source) to be reported to the responsible manager and the manager one
level higher.
The entity has established a practice that requires all deficiencies to be
rated as to their risk to the reliability of financial reporting.
Control attributes: Deficiencies that affect internal control over financial reporting are communicated to top management and the board or audit
committee, regularly and as necessary.
The entity has established a practice that requires all deficiencies that
have been rated as a serious threat to the reliability of financial reporting
to be reported to senior management and to those charged with
governance (i.e., the board or audit committee).
The entity has established an alternative reporting channel for
deficiencies that are sensitive in nature, such as illegal or improper acts.
Control attribute: Deficiencies reported from both internal and external sources are considered for internal control implications, and timely corrective
actions are identified and taken.
The entity has established a practice that requires it to attempt to correct

all deficiencies that have been rated as a serious threat to the reliability of
Those charged with governance (i.e., the board or audit committee) track
the status of all deficiencies that have been rated as a serious threat to the
reliability of financial reporting until satisfactorily resolved.
Complete reports of deficiencies in internal control from internal and

external sources are provided to those charged with governance (i.e., the
board or audit committee).
24
Period-End Financial Reporting
Instructions
GENERAL LEDGER AND JOURNAL ENTRIES
Control attribute: The entity has established procedures to record all transaction totals on the general ledger.
Daily transaction totals from subsidiary systems are reconciled to the

journal entry(s) recorded in the general ledger system for systems that
interface with the general ledger.
Access to and ability to edit subsidiary system transactional detail is
appropriately restricted.
Access to manually post subsidiary system transactional detail to the
general ledger is appropriately restricted.
Control attribute: The entity has established procedures to record standard and nonstandard journal entries in the general ledger.
Nonstandard entries (such as entries to record nonrecurring or unusual

transactions and nonrecurring estimates, such as an asset impairment)
are required to be reviewed and approved by the entity's CFO or
equivalent.
Standard and nonstandard entries, including online entries, are signed

by the individual who prepared the entry and by the individual who
approved / reviewed the entry.
Standard and nonstandard entries, including online entries, are recorded

using appropriate segregation of duties between those who prepare,
approve, and post entries and those who reconcile the general ledger
account.
Access to and ability to initiate and record general ledger entries is
appropriately restricted.
Control attribute: The entity has established procedures to manage the general ledger and chart of accounts.
Procedures to control modifications to the chart of accounts, such as

opening and closing accounts and changing account characteristics, have
been established.
Procedures exist to ensure that all balance sheet accounts are reconciled
to related detailed records.
24
PERIOD-END CLOSING, CONSOLIDATING THE GENERAL LEDGER, AND PREPARING THE FINANCIAL
STATEMENTS AND DISCLOSURES
Control attribute: The entity has established period-end closing procedures.

Detailed period-end closing procedures, including details of standard

closing entries, sources of information to create such entries, and other
closing procedures have been established.
A period-end close package documenting all closing entries created, the

data sources used to create such entries, and other procedures performed
is created for each close.
The period-end close package is reviewed and compared with the

general ledger by a person not involved in preparing the close package
or performing the close.
Control attribute: The entity has established procedures to combine or consolidate general ledger data.
Detailed consolidation procedures, including details of standard

adjusting, reclassifying, consolidating, and eliminating entries, sources of
information to create such entries, and other consolidation procedures,
have been established.
General ledger detail imported or entered into the

consolidation/reporting system is reconciled to the final period-end
general ledger from the accounting system.
A consolidation package documenting general ledger detail, adjusting,

reclassifying, consolidating, and eliminating entries, the data sources
used to create such entries, groupings of accounts to financial statement
lines, and other procedures performed is created for each consolidation.
The consolidation package is reviewed by a person not involved in
preparing the consolidation package or performing the consolidation.
Control attribute: The entity has established procedures to select accounting principles that conform to GAAP.
Newly issued accounting standards are reviewed to determine
applicability to and impact on the entity.
New business transactions are reviewed to determine appropriate
accounting.
25
Personnel responsible for financial reporting have access to an
accounting research tool such as Accounting Research Manager.
Personnel responsible for financial reporting keep current with
accounting and financial reporting developments.
Control attribute: The entity has established procedures to prepare the financial statements and disclosures. (MANAGEMENT PREPARES THE
FINANCIAL STATEMENTS INTERNALLY.)
Detailed financial reporting procedures, including sources of

information necessary to prepare the financial statements and
disclosures, have been established.
Financial statements and disclosures are prepared by personnel
sufficiently familiar with the entity and with financial reporting
requirements.
Financial reporting personnel use current and reliable GAAP/SEC
checklists, including industry supplements.
A financial reporting package documenting sources of information used

to prepare the financial statements and disclosures and how such
information reconciles to the accounting records is created for each
financial report.
The financial statements and disclosures and the financial reporting

package are reviewed by a person sufficiently familiar with the entity
and financial reporting rules and who was not involved in preparing the
financial reporting package or the financial statements and disclosures.
Significant events occurring subsequent to period-end are reviewed to

determine whether the event should be disclosed or recorded in the
financial statements and disclosures.
Control attribute: The entity has established procedures to prepare the financial statements and disclosures. (MANAGEMENT OUTSOURCES
PREPARATION OF THE FINANCIAL STATEMENTS.)
Detailed financial reporting procedures, including sources of

information necessary to prepare the financial statements and
disclosures, have been established.
A contractual relationship with the financial reporting vendor exists that

indicates the scope of the vendor's services and that the financial
statements will be prepared using U.S. GAAP (or other basis as
appropriate).
26
Management has recently assessed and documented the qualifications of
the vendor to prepare financial statements in accordance with U.S.
GAAP (or other basis as appropriate).
Management understands that it is responsible for the accuracy of the
financial statements.
Information to be provided to the vendor is reviewed prior to sending it
to the vendor by personnel sufficiently familiar with the entity.
Personnel sufficiently familiar with the entity review the financial

statements and disclosures received from the vendor for accuracy,
including reconciling selected information in the financial statements
and disclosures to the accounting records.
The financial statements and disclosures received from the vendor are
reviewed using current and reliable GAAP checklists by personnel
sufficiently familiar with the entity.
Significant events occurring subsequent to period-end are reviewed to

determine whether the event should be disclosed or recorded in the
financial statements and disclosures.
27
Budgets
Instructions
Control attribute: The entity has established appropriate budgetary controls.
The entity has approved and documented formal budget preparation

procedures, and the procedures are adhered to by the governing body
and management.
Budgets are created and approved annually by the board of directors or
another appropriate authority.
Budget amendments are created and approved by the board of directors
or another appropriate authority.
The budget is input into the general ledger and reviewed for accuracy.
The budget is monitored during the year by management. Variances

from the approved budget are investigated. Actual results are compared
with the budget, and variances from the budget are investigated.
28

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SUMMARY OF THE FIVE-STEP PROCESS

* Generally performed only by internal auditors.

The entity has developed a clearly articulated statement of ethical values

Employees in senior management and the accounting/finance function,

Employees are encouraged and given the means to communicate

The CEO and senior management demonstrate the importance of sound

The board comprises qualified individuals who have appropriate

The board is sufficiently engaged to scrutinize the activities of

The audit committee has at least three members, each of whom is

The audit committee performs a review of the annual financial

During its meetings, the audit committee maintains an appropriate level

Those charged with governance are sufficiently independent of

Those charged with governance have sufficient organization stature to

Those charged with governance review policies and procedures used by

Those charged with governance are timely and fully apprised of

Those charged with governance are sufficiently engaged to scrutinize the

Those charged with governance meet with external auditors to discuss

Those charged with governance meet with internal auditors to discuss

Management emphasizes the importance of minimizing risks related to

Management participates in the establishment of accounting for

PRINCIPLE 4. ORGANIZATIONAL STRUCTURE

Management has established an organizational structure indicating roles

PRINCIPLE 5. FINANCIAL REPORTING COMPETENCIES

Before hiring for key financial positions, management establishes and

Competencies of individuals serving in key financial reporting roles are

Management periodically reviews and evaluates employees relative to

PRINCIPLE 6. AUTHORITY AND RESPONSIBILITY

PRINCIPLE 7. HUMAN RESOURCES POLICIES AND PRACTICES AND COMMITMENT TO COMPETENCE

Those charged with governance (or the board or audit committee)

Management evaluates the sufficiency and competency of personnel

Management has a defined process for identifying internal risks relevant

Management has a defined process for identifying external risks relevant

Once risks relevant to the preparation of financial statements in

Key finance personnel periodically meet with executive management, IT

PRINCIPLE 10. FRAUD RISK

Management conducts a periodic fraud risk assessment to identify the

Management uses information technology tools including security

The entity maintains an incident investigation and remediation system

Management periodically assesses the sufficiency of its information

Management periodically assesses data reported to determine whether

PRINCIPLE 17. INTERNAL COMMUNICATION

Management communicates information about the entity's financial

The CFO reviews and discusses financial information and other

The entity provides for alternative reporting lines such as

The entity surveys external parties, such as customers, suppliers,

Management compares actual performance against budget, and

Management has established normal, recurring supervisory activities,

An internal audit department exists that is appropriately independent of

Results of control monitoring and audit activities are reported to

The entity has established a practice that requires it to attempt to correct

Complete reports of deficiencies in internal control from internal and

Daily transaction totals from subsidiary systems are reconciled to the

Nonstandard entries (such as entries to record nonrecurring or unusual

Standard and nonstandard entries, including online entries, are signed

Standard and nonstandard entries, including online entries, are recorded

Procedures to control modifications to the chart of accounts, such as

Control attribute: The entity has established period-end closing procedures.

Detailed period-end closing procedures, including details of standard

A period-end close package documenting all closing entries created, the

The period-end close package is reviewed and compared with the

Detailed consolidation procedures, including details of standard