ACCA SBL Course - Chapter 19 (Part 2): Audit and Internal Control

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This video discusses the role of different groups within a company in relation to internal controls and reporting. It emphasizes the importance of the board of directors, the audit committee, and internal audits in ensuring an effective internal control system that allows the business to operate efficiently and meet its corporate objectives. When preparing for exams, it suggests recalling key themes like efficiency and effectiveness.

The board should conduct an annual review of the company’s internal control systems, assessing how well these controls are working. The review should cover all critical areas, including financial controls, operational controls, compliance, and risk management. Effective communication and reporting are highlighted as essential for conveying information about these controls to shareholders and other stakeholders.

The video also addresses the growing importance of sustainability reporting and integrated reporting, noting that stakeholders such as customers, employees, and government agencies are increasingly interested in environmental issues. It points out that regulations regarding reporting, especially in regard to carbon emissions, are becoming stricter, with varying requirements based on jurisdiction. For example, in the UK, companies with more than 500 employees must report certain information, while in the US, there are more voluntary guidelines that can lead to inconsistencies and lack of comparability in reporting practices.

The video then highlights the responsibility of financial reporting and the importance of having strong internal control systems in place. It discusses the concept of internal controls over financial reporting (ICFR) designed specifically to ensure reliability in financial processes. However, issues can arise from differing interpretations of accounting standards and what one board deems acceptable may differ from another’s view.

It emphasizes that the design of reporting systems should focus on transparency in the decision-making process, but challenges often stem from a lack of ownership among board members regarding sustainability and corporate social responsibility initiatives. If top management is committed to these issues but lower levels of management are not, effective action may falter.

Variations in reporting practices can lead to difficulties in understanding and comparability from year to year. To address these challenges, the text advocates for clear communication about the company’s mission and objectives while building strong systems to report on sustainability efforts. The overall goal is to ensure reliability, transparency, and a clear understanding of why these issues are important.

In summary, the video covers the roles and responsibilities of the board, audit committee, and internal audit in maintaining effective internal controls and sustainability reporting. It examines potential challenges and suggests improving transparency and communication as ways to enhance reporting practices and overall performance in sustainability.


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