| List of Figures | p. xi |
| List of Tables | p. xv |
| Preface | p. xvi |
| Acknowledgements | p. xxi |
| List of Abbreviations and Acronyms | p. xxii |
| Why Internal Control Systems Must be Audited | |
| The Role of Auditing in an Organization | p. 3 |
| Introduction | p. 3 |
| Auditing Defined | p. 5 |
| Auditing as an Indispensable Element of a Management System | p. 8 |
| Senior Management Responsibilities in Connection with Auditing and Internal Controls | p. 12 |
| Value-Added Services to be Provided by Auditing | p. 16 |
| The Role of an Independent Auditing Committee and the Contribution of the Treadway Commission | p. 21 |
| Good Practice Guidelines Regarding Auditing Committee Functions and Responsibilities | p. 24 |
| What is Meant by 'Internal Control'? | p. 28 |
| Introduction | p. 28 |
| 'Internal Control' Defined | p. 30 |
| What Constitutes a Sound Internal Control Policy? | p. 34 |
| Steps in Implementing an Internal Control System | p. 36 |
| Improving the Status of Internal Control in Business and Industry | p. 40 |
| What Is Meant by a 'Rigorous Internal Control Solution'? | p. 43 |
| A Practical Example with Internal Control Approaches to Operational Risk | p. 47 |
| Definitions of Internal Control by AICPA, Basle Committee, EMI, IIA, and COSO | p. 51 |
| Internal Control and the Globalization of Financial Markets | p. 54 |
| Introduction | p. 54 |
| The Impact of Globalization on Internal Control | p. 55 |
| Regulators Look at Internal Control as a Foundation of Sound Management | p. 58 |
| Important Differences Between Accounting Systems Handicap Global Internal Control and Auditing | p. 62 |
| Internal Control Deficiencies, Conflicts of Interest, and the Massaging of Accounting Data | p. 65 |
| A Threat Curve Which Addresses Our Problems and Their Likelihood | p. 78 |
| New Standards for Auditing Internal Control and the Use of Risk-Based Audits | p. 83 |
| Introduction | p. 83 |
| Auditing Responsibilities Prescribed by Securities Laws | p. 85 |
| Agency Costs and the Impairment of Assets | p. 87 |
| Using a Company's Cash Flow for Auditing Reasons | p. 91 |
| The Concept Underpinning Risk-Based Auditing | p. 95 |
| Authority and Responsibility for Risk-Based Auditing Solutions | p. 98 |
| Paying Attention to Information Requirements for Risk-Based Auditing | p. 101 |
| A Methodology for Auditing the Internal Control System | p. 105 |
| Introduction | p. 105 |
| Discovery is the First Major Step of a Valid Auditing Methodology | p. 106 |
| Auditing Strengths and Weaknesses of an Internal Control System: An Example From a Money Centre Bank | p. 110 |
| The Methods of Internal Control Resemble Those of Military Intelligence | p. 114 |
| Internal Control Intelligence and the Calculation of Assumed Exposure | p. 118 |
| Internal Control Intelligence and Dynamic Computing of Capital Requirements | p. 123 |
| Synergy Necessary Between Business Units to Make Internal Control a Reality | p. 127 |
| Management Appraisal of and Accountability for the Internal Control System | |
| Senior Management Responsibilities For Internal Control | p. 133 |
| Introduction | p. 133 |
| Legal Reasons Why Internal Control Must be Managed | p. 134 |
| Effective Internal Control Requires Trustworthy People | p. 140 |
| Internal Control, Product Review, and Risk Assumptions | p. 144 |
| Senior Management Cannot Delegate its Accountability for Internal Control | p. 148 |
| Restructuring is a Critical Element of Financial Innovation | p. 152 |
| Beware of Creative Accounting: it is Poison to Internal Control | p. 155 |
| Internal Control Implementation Must Focus on Core Functions | p. 159 |
| Introduction | p. 159 |
| Which are the Core Functions of a Financial Institution? | p. 160 |
| A Polyvalent Approach to the Implementation of Internal Control: the Commission Bancaire Directives | p. 163 |
| Why Both a priori and a posteriori Studies Improve Internal Control | p. 165 |
| Do We Need a Separate Department to Look After Compliance? The Case of Two Swiss Banks | p. 172 |
| Management Intent: Its Impact on Internal Discipline and Financial Reporting | p. 176 |
| New Rules of Competition and the Need for Market Discipline | p. 182 |
| Establishing an Efficient Internal Control Structure | p. 185 |
| Introduction | p. 185 |
| Organizational Solutions for Internal Control at Edward Jones | p. 187 |
| The Process of Internal Control and the Prerequisites for Risk Management | p. 190 |
| Commercial Risk, Financial Risk, and the Tuning of Internal Control | p. 193 |
| Should We Analyze the Behavioural Pattern of Our Traders? | p. 196 |
| Developing and Using a System of Internal Margin Calls | p. 202 |
| Internal Controls Should Highlight Information Technology Failures | p. 206 |
| Case Studies on the Implementation of Internal Control | |
| Applying Internal Control to Our Institution's Limits System | p. 213 |
| Introduction | p. 213 |
| Limits, Marking-to-Market, and the Contribution of Internal Control | p. 214 |
| Internal Control and the Role of Benchmarks | p. 219 |
| Answers by Leading Institutions to an Internal Controls and Limits Questionnaire | p. 221 |
| Setting Limits is a Business Requiring Know-how and Imagination | p. 225 |
| The Study of Internal Controls by the European Monetary Institute | p. 228 |
| Advance Notice Can Help in Limiting Future Loss Through Repositioning | p. 231 |
| Auditing Counterparty Limits and Trading Limits | p. 235 |
| Introduction | p. 235 |
| Internal Controls and Dynamic Limits Management | p. 236 |
| The Role of Auditing in Controlling the Calculation of Prices and Risk Premiums | p. 241 |
| Internal Controls, Leveraging, and the Evaluation of Risk and Return | p. 245 |
| Should Internal Controls Reflect a Portfolio's Diversification? | p. 250 |
| Internal Controls and Limits for Equity Trading | p. 254 |
| Examining and Implementing Limits in Currency Positions | p. 258 |
| An Internal Control System for Engineering Design, Product Development, and Quality Assurance | p. 262 |
| Introduction | p. 262 |
| Long-Termism and Short-Termism in RandD | p. 263 |
| A Methodology for Internal Control Applied to Engineering Design | p. 268 |
| Internal Control's Contribution to the Project Manager's Job | p. 271 |
| Internal Control for Prototypes and for Measurements Connected with Different Projects | p. 276 |
| Design Reviews are Essentially a Process of Rigorous Auditing | p. 280 |
| An Infrastructure for Quality Assurance | p. 284 |
| Services Provided by Information Technology to the Auditing of Internal Controls | p. 289 |
| Introduction | p. 289 |
| Positioning Our Institution to Profit From the Fact that Banking is Information in Motion | p. 292 |
| The Use of Advanced Technology is not a Fad but an Obligation | p. 294 |
| Online Banking and the Auditing of Financial Operations | p. 299 |
| The Effective Use of Information Technology for Internal Control | p. 304 |
| The Regulators Emphasize the Need to Use Technology in an Able Manner | p. 308 |
| Why Auditing Increasingly Depends on Computer Systems | p. 310 |
| The Contribution of External Auditors to the Internal Control System | p. 314 |
| Introduction | p. 314 |
| Value-Added Duties Beyond Those Classically Performed by External Auditors | p. 315 |
| What Should be Expected from Auditing Internal Controls by External Auditors? | p. 319 |
| Are Central Bank Examiners Better Positioned in Studying the Effectiveness of Internal Controls? | p. 323 |
| The Concept Behind Outsourcing Internal Auditing and Other Duties | p. 327 |
| A Closer Look at Outsourcing Internal Auditing, its 'Pluses' and 'Minuses' | p. 330 |
| Liabilities Which Might Come the Way of External Auditors | p. 334 |
| Bibliography | p. 337 |
| Appendix of Participating Organizations | p. 339 |
| Index | p. 359 |
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