From the course: Audit and Due Diligence Foundations

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Internal control

Internal control

From the course: Audit and Due Diligence Foundations

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Internal control

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- Have you ever heard of the triangle of fraud? Auditors talk about this a lot, and they say that there are three requirements for fraud to happen-incentive, opportunity, and rationalization. But there's something that can prevent the triangle of fraud-it's called internal control, and when an auditor tests internal controls of a company, the auditor is testing for errors as well as fraud. There are five components of internal control. There's the control environment. There's risk assessment, control activities, information and communication, and monitoring activities. Let's look at these five. First, there is the control environment. This is another way of describing how a business is run. Is the business run ethically? Is a tone of ethics and competence in the organization, and is it set at the top? This is an important thing people talk about. It's the corporate culture of a company, and it's why CEOs sometimes get…

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