Defining Entities and Elements

This chapter provides an overview of entities, elements, and risk exposure rankings and discusses how to establish entities and elements.

Understanding Entities, Elements, and Risk Exposure Rankings

This section discusses:

• Entities.

• Elements.

• Element risk rankings.

• Overall element risk.

Entities

Entities in PeopleSoft Internal Controls Enforcer represent organizational units from your enterprise's reporting or operational structure, such as business units, or regions. Entities are a critical component of PeopleSoft Internal Controls Enforcer, as they are the level at which risk exposure is monitored. Each entity is associated with an owner, who receives notifications when their subprocesses are signed off.

Elements

Elements represent the discrete financial elements that have a significant impact on a company’s financial statements, such as accounts payable. Typically, elements are the line items or accounts that are included on a balance sheet or income statement. PeopleSoft Internal Controls Enforcer enables you to monitor the controls that are implemented to mitigate the risks associated with business processes that have a material impact on these elements.

Element Risk Rankings

When you define an element, you specify its relative level of risk exposure—either low, medium, or high—for five element risk categories. These categories identify the different types of risk to which an element is susceptible. Each element risk category is assigned a relative level of importance compared to the other element risk categories—either low, medium, or high. The element risk categories are delivered as system data; the only modifications that you can make to them are to change the descriptions or relative importance, or inactivate a given category, making it irrelevant when computing the overall risk ranking.

The delivered element risk categories are:

Overall Element Risk

The system uses the numeric equivalent of each element risk category's relative importance, in conjunction with an element’s relative risk exposure ranking for each element risk category, to calculate an overall risk ranking for each element. You can either use the system's calculated overall risk ranking for an element, or override the calculated value by manually specifying the overall risk. The system uses the overall risk ranking to identify the most critical (riskiest) elements in the system. Also, the overall risk ranking can help you prioritize the business processes that are associated with those elements, and determine whether to include them in the internal control sign-off process.

The calculation that the system uses to compute the overall score for an element, which is a weighted average, is:

Overall Score = ∑ [(Element Risk Category Ranking numeric equivalent) × (Importance Ranking numeric equivalent)] ÷ ∑ (Importance Ranking numeric equivalents)

Only active element risk categories are included in the calculation.

The overall score result is assigned a ranking of low, medium, or high, based on this scale:

The numeric equivalents for the Importance and Risk Category fields are:

Example

This example shows how the overall risk ranking is calculated, assuming that the element has been assigned the importance and ranking values for each of the element risk categories as listed in this table; the numeric equivalents appear in parentheses:

Establishing Entities and Elements

To define entities and financial elements, use the Entity Definition (EPQ_ENTITY_DEFN) and Element Definition (EPQ_ELEM_DEFN) components. Use the EPQ_ENTITY_DEFN_CI component interface to load data into the tables for the Entity Definition component. Use the EPQ_ELEM_DEFN_CI and EPQ_ELEM_RANK_CI component interfaces to load data into the tables for the Element Definition component. To enter monetary amounts for financial elements, use the Element Amount Definition component (EPQ_ELEM_AMT). Use the EPQ_ELEM_AMT_CI component interface to load data into the tables for this component.

This section discusses how to:

• Define entities.

• Define element risk categories.

• Define elements.

• Rank element risk.

• Enter monetary amounts for financial elements.

• Review element risk rankings.

Pages Used to Establish Entities and Elements

Defining Entities

Access the Entity Definition page (Internal Controls Enforcer, Master Setup, Entity Definition).

Entity Owner

Specify the user ID of the person primarily responsible for this entity. This person receives notifications when the entity definition is saved, informing them that the entity is assigned to them. Other circumstances also trigger notifications to the entity owner, including: When the entity is reassigned to a different owner. When a subprocess sign-off sheet has been signed off. Note. If you change the owner ID for an existing entity, and subprocess instances for that entity have already been generated, there is an impact to the PeopleSoft Enterprise Portal content management records, as the workgroup category already exists for that owner. The system adds the new owner ID as an administrator to the workgroup and all child workgroups. The previous owner retains membership to the workgroup in case they have checked out content. A content management administrator can manually remove the old entity owner.

Business Unit

Enter the business unit that is associated with this entity. The diagnostics tool uses this field to map entities to business units within the PeopleSoft Financials database. If you leave this field blank, the diagnostics tool uses the entity ID as the business unit.

Defining Element Risk Categories

Access the Element Risk Category Definition page (Internal Controls Enforcer, Master Setup, General Setup, Element Risk Categories).

Category ID	Displays the identifier of the risk category. Category IDs 1, 2, 3, 4, and 5 are delivered with the system. You can't add new category IDs; however, you can modify the description or importance for a category ID, or change its effective status.
Effective Date and Effective Status	Enter the date on which these element risk category settings take effect, and the effective status as of that date. If your organization determines that one of the delivered element risk categories is not applicable to your implementation, then you must change its status to Inactive to disable it, because you can't delete element risk categories.
Description	Displays the description of the element risk category. This appears in the Risk Ranking grid in the Element Definition component.
Importance	Specify the relative importance of this risk category. Options are: Low: Select for categories that your organization considers least important. The numeric equivalent for low is 1. Medium: Select for categories that your organization considers moderately important. The numeric equivalent for medium is 2. High: Select for categories that your organization considers very important. The numeric equivalent for high is 3.

Defining Elements

Access the Element Definition page (Internal Controls Enforcer, Master Setup, Element Manager, Element Definition, Element Definition).

Element ID and Description

Specify the identifier and enter the element description.

Reporting Sequence

Enter a numeric value to control the order in which the element appears on the Element Risk Ranking Matrix and Element Amount Definition pages. The system displays elements in ascending order based on the value that you enter for this field, with lower numbers appearing first. If two elements use the same reporting sequence number, the system groups the information by element ID. To allow for additions and possible reordering at a later time, it is recommended that you leave gaps in the sequence numbers that you assign.

Ranking Element Risk

Access the Risk Ranking page (Internal Controls Enforcer, Master Setup, Element Manager, Element Definition, Risk Ranking).

Use the Risk Category Ranking Detail grid to rank an element's risk exposure level for each element risk category. The system uses these rankings to determine the calculated overall ranking for this element, which ultimately enables you to define the importance of the business processes that impact this element.

Entering Monetary Amounts for Financial Elements

Access the Element Amount Definition page (Internal Controls Enforcer, Master Setup, Element Manager, Element Amounts).

<financial element description>	Click to access the Element Definition page for the financial element, where you can review the details of the financial element.
Sequence	Displays the reporting sequence for the financial element, which is defined on the Element Definition page.
Amount	Enter the monetary amount from the most recently published financial statements for each element as of the specified date. These amounts appear on the Element Risk Ranking Matrix page. The currency for which amounts are entered is established by using the Internal Controls Enforcer General Preferences page. See Establishing General Preferences.

See Also

Defining Elements

Reviewing Element Risk Rankings

Access the Element Risk Ranking Matrix page (Internal Controls Enforcer, Master Setup, Element Manager, Element Risk Ranking Matrix).

The Element Risk Rankings grid displays the financial elements sorted by reporting sequence number, with their associated monetary value, their risk rankings for each active risk category, and their overall risk ranking.

If asterisks appear for an overall risk ranking, it indicates that the ranking was manually entered for that financial element, instead of using the system-calculated rank.

See Also

Defining Elements