Page 42 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chapter 3

The Turnbull Report (2005)

2.1 Elements of a sound system of internal control

 An internal control system encompasses the policies, processes, tasks,
behaviours and other aspects of a company that, taken together:

– facilitate its effective and efficient operation by enabling it to respond
appropriately to significant risks

– help ensure the quality of internal and external reporting

– help ensure compliance with applicable laws and regulations.

 The system of internal control will include:

– control activities
– information and communications processes
– processes for monitoring the continuing effectiveness of the system.

 The system of internal control should be:

– embedded within operations
– able to respond to changing risks

– includes procedures for reporting failings or weaknesses.

 A sound system of internal control reduces, but cannot eliminate, the possibility
of poor judgement in decision making, human error; control processes being
deliberately circumvented and the occurrence of unforeseeable circumstances.

 A sound system of internal control therefore provides reasonable, but not
absolute, assurance that a company will not be hindered in achieving its
business objectives by circumstances which may reasonably be foreseen.

32