Internal Controls, an Internal Audit Function, and an Audit Committee

question 28

Essay

Internal controls, an internal audit function, and an audit committee are all elements of a strong corporate governance system. How should an external auditor evaluate these elements in making a risk assessment? What are the ethical signs that each system is operating as intended?

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Definitions:

Standard Quantity

The estimated amount of materials or resources expected to be used during a production process under normal conditions.

Direct Materials

Raw materials that can be directly attributed to the production of specific goods or services.

Allowances For Spoilage

Financial adjustments made for the anticipated loss of goods due to spoilage during production or storage.

Inefficiency

The lack of ability or effectiveness to transform inputs into outputs in a cost-effective manner, often resulting in wasted resources.