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This is Professor David Hay of
the University of Auckland and
this is the fifth
talk about auditing.
Today we're talking
about internal control.
Internal control of
the organization
and how that affects
the auditor.
Internal control is
management's responsibility.
It's something the
company puts in place
but it's extremely useful
for auditors to understand.
I appeared in a previous talk
under the topic of control risk.
Good internal control
means less control risk.
Inferior internal control
means worse control risk.
0:29
The organization's
way of controlling
itself, if the
organization's got
good controls it helps
to make sure it's
got reliable and accurate
financial statements.
Auditors must understand
the internal control
and they possibly have
further requirements as well.
0:43
In particular,
in some countries and
for some organizations,
the auditors are required to
report on internal control.
That applies to large
listed companies in
the United States and also to
certain companies in
China and in Japan.
Similar requirements
have not been
introduced in other
jurisdictions such
as Europe or the United Kingdom
or Australia or New zealand.
Not yet, but maybe that's
sometime in the future.
In either situation,
internal controls
are still very
important to everyone.
The required auditing
procedure is under
the auditing standards and
very useful as auditing
procedures go.
1:15
Internal control also ties
into the area of governance.
How good is the
company's governance?
Does it have
independent directors?
Does it have an audit committee?
Does it have an internal
audit function?
Auditors will look at that
part of the company as well.
1:29
But particularly to look
at internal control,
most likely using a
set of definitions
and system set up by COSO.
COSO is the committee of
sponsoring organizations of
the Treadway Commission
in the United States.
You don't really need
to know much about
COSO, just it's a committee of
important United States
organizations that
are involved with
accounting and internal
control in various ways.
They've been making
statements and pronouncements
about internal control for
quite a few years now.
The most relevant to
us is COSO's statement
