Internal control, as defined in many accounting and audit publications, is an important method for ensuring the safety of an entity’s goals in terms of reliability, financial reporting, and adherence to policies, regulations, and rules. In order to be effective and result-oriented, internal control is designed to provide timely, accurate, and relevant information to the management, stakeholders, and staff of an organization.
Components Of Internal Control
Its key components are primarily the control measures themselves – namely internal control measures such as internal control procedures, documentation related to the control measures and assurance processes, the checks and balances system, and the audit and risk management procedures.
These components help ensure that the goals of the organization are properly achieved through the application of internal controls. Internal control also helps ensure that the assets of the organization are protected from risks and uncertainties.
Internal control is an elaborate web of lawful as well as step-by-step safeguards as well as obligations that are developed to give affordable guarantee relating to the success of goals in the efficiency of business Internal control is therefore not only significant in protecting against risks and uncertainties in the course of business operations but also in ensuring that the objectives of the organization are successfully achieved.
Moreover, it helps protect the rights of the owners, officers, and employees of the company from discrimination, improper move, damage or loss, in the event of unauthorized disclosure of information, misplacement or loss of property or other forms of loss.
The Objective Of Internal Control
A major objective of internal control is the provision of reasonable assurance regarding the prevention of fraud and other criminal activities. Internal controls can be directed at any activity or process and applied to the prevention of risks associated with the conduct of business, the proper functioning of the internal control measures, and the monitoring of activities and processes.
Internal controls may include internal control arrangements such as controls relating to the processing of payments or the maintenance of records and systems used to control and ensure compliance with policies and procedures.
Other internal control arrangements may relate to the prevention of inaccurate transactions, compliance with legal requirements concerning transactions with customers and suppliers, compliance with regulatory provisions on matters related to the protection of the customer’s interests.
Control measures may be designed to protect the assets of the company and to ensure that the loss suffered in one area does not lead to a loss in another area.
Control measures can be designed to help ensure the effectiveness of internal control. An effective internal control system is one that helps ensure that the goals of the management policy are effectively achieved. Effective control activities may involve supervision, monitoring, evaluations, and alerts.
Supervisors play an important role in the evaluation of the objectives of the control system, in formulating procedures, and in providing support and services where needed. In order to help ensure the effectiveness of the supervision and the administration of the system, the division of responsibility for the oversight and application of the policies and procedures should be included in the control system.
Procedures and processes that are properly implemented can allow effective implementation of internal control. Procedures should be developed that help to ensure that risks are effectively assessed and controlled.
Procedures that involve risk assessment are available that can enable the proper identification and assessment of risks that affect the conduct of the business. Proper procedures will help to ensure that there is no possibility of undiscovered risks or of threats that could result in damage or loss to the business.
Control systems that are properly implemented can help to ensure that the risk assessment conducted by the control system is effective.
The proper identification and evaluation of risks can enable the correct adjustment of operating style and of the working environment that will in turn contribute to the achievement of organizational objectives.
Operating style and the working environment can change over time; it may become necessary to modify the operating style in light of the identified risks or other circumstances that may affect the performance of the business. Control systems that are properly implemented will help to ensure that changes in the operating style take place as required.