Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
This presentation examines ICs and their effectiveness.
Internal control is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Effectiveness and efficiency of operations
Reliability of financial reporting
Compliance with applicable laws and regulations
This presentation examines ICs and their effectiveness.
Why do we need internal control in an organization What is its purp.pdfmarketing413921
Why do we need internal control in an organization? What is its purpose, and what are its
objectives (not components)? Can you explain with examples?
Solution
INTERNAL CONTROL - The process designed, implemented and maintained by those charged
with governance, management and other personnel to provide reasonable assurance about the
achievement of an entity’s
objectives with regard to reliability of financial reporting,
effectiveness and efficiency of operations, safeguarding of assets, and compliance with
applicable laws and regulations. The term \"controls\" refers to any aspects of one or more of the
components of the internal control
WE NEED INTERNAL CONTROL SYSTEM IN THE ORGANISATION TO REDUCE THE
RISK OF FRAUD AND ERRORS
MAIN OBJECTIVES OF THE INTERNAL CONTROL SYSTEM IN THE ORGANISATION
ARE
Aims of Internal Control in relation to Financial and Accounting Aspects: Internal
controls relating to financial and accounting aspects are concerned with achieving the
following objectives -
(1) transactions are executed in accordance with management’s general or specific authorisation;
(2) all transactions and other events are promptly recorded in the correct amount, in the
appropriate accounts and in the proper accounting period so as to permit preparation of
financial statements in accordance with the applicable accounting standards, other recognised
accounting policies and practices and relevant statutory requirements, if any,
and to maintain accountability for assets;
(3) assets and records are safeguarded from unauthorised access, use or disposition; and
(4) the recorded assets are compared with the existing assets at reasonable intervals and
appropriate action is taken with regard to any differences.
For example : an auditor may perform a \"walk-through\" test that is, tracing a few transactions
through the accounting system. When the transactions selected are typical of those
transactions that pass through the system, this procedure may be treated as part of the tests of
control. The nature and extent of walk through tests performed by the auditor are such that they
alone would not provide sufficient appropriate audit evidence to support a control risk
assessment which is less than high.
Thank you hope this usefull.
. In accounting and auditing, internal control is a process for assuring achievement of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
Internal Financial Control Over Financial Reporting.pdfSBSGLOBAL1
In order to ensure internal financial control over financial reporting, there must be effective controls in place. Learn more about these controls here! visit more- https://www.sbs-global.com/internal-financial-control-over-financial-reporting/
2. Internal controls is defined as not only
internal check & internal audit but the
whole system of controls, financial &
otherwise, established by the
management in order to carry on the
business of the company in an orderly
manner, to safeguard its assets and
secure as far as possible accuracy and
reliability of the records.
3. A whole system of control
Financial control
Non-financial control
Management
Records
4. Plan of organization: There should be an
appropriate plan & structure of the
organization for internal control. There
must be proper division of various financial
responsibilities. Delegation of authority
should be taken up with responsibility so
that the person concerned should
effectively & efficiently discharge his
responsibility.
contd.
5. Authority & responsibility: There
should be proper balance between
authority and responsibility so that
accountability should be properly fixed. As
far as possible duplication of duties &
responsibilities should be avoided. The
duties of various individuals should be
divided to provide a reasonable guard
against irregularities & falsification of
accounts by any one individual.
contd.
6. Sound practices & healthy traditions:
For a good internal control system, there
should be sound practices & healthy
tradition in an organization. There should
be effective and efficient internal control
system in all important accounting
functions.
contd.
7. Quality Personnel: Personnel of
necessary competence make internal control
system effective. Only efficient personnel
can carry out prescribed procedures in
efficient manner.
System of authorization & record
procedure: The system of internal control
ensures reasonable accounting control over
assets, liabilities, revenues & expenses.
8. There should be a well developed plan of
organization.
The organization certain delegation of
proper responsibilities.
There should be a well developed
accounting system.
Account system or its procedure should be
based on proper controls over capital &
revenue.
The performance of duties should be
measured at every level.
9. To follow the policies & procedures laid
down by Management: Various control
techniques such as time & motion study,
comparison of budgeted & actual figures,
performance appraisals etc. designed to
enable the management to ensure
adherence to its policies & procedures.
cont.
10. Safeguarding of Assets: The second
objective which internal control system
should try to achieve is safeguarding as
assets from theft unauthorized used,
accidental destruction & any such
occurrence. Limiting access to valuable &
portable assets, inventory, small tools,
periodic physical inspection of inventories
are some of the ways to safeguard the
assets.
cont.
11. Prevention & detection of Frauds &
Errors: A well designed internal control
system should provide for prevention &
detection of frauds & errors. Strict
documentation requirement encompassing
pre-numbering of documents, limiting access
to unused documents & periodic examination
of numeric sequence of used documents, are
examples of some means through which the
objective is achieved.
cont.
12. Timely preparation of Reliable Financial
Information: Internal control system
should be designed keeping in mind the
timing of information required as per the
applicable laws and needs of the
management.
cont.
13. Accuracy & Completeness of Records:
Records are physical evidence of executed
transactions. The term accuracy &
completeness of records implies:
Information in the records is in compliance
with applicable laws & regulations.
No error & fraud exit.
14. Internal control is the overall control
environment established by management
of an enterprise for effective & sufficient
monitoring & control of its operations.
If internal control is effective, the auditor
may confine his examination & audit
procedures only to a representative
number of transactions & avoid a detailed
verification of every transaction which will
be costly both in terms of money & time.
15. High cost of implementation: Management
of a small company may not establish internal
control system due to high cost of
implementation. It is suitable only for big
business houses.
Potential of human error: the potential of
human error due to employee carelessness,
misunderstanding of instructions & errors in
judgment have an impact on the effectiveness of
internal control system.
cont.
16. Possibility of collusion: One of the
fundamental principles in the design of an
internal control system is the segregation of
duties of employees. If two or more
employees recording different aspects of
transaction collude, the effectiveness of
internal control system will be
compromised.
cont.
17. Misuse of authority: It is possible that a
person who is exercising control could
misuse the authority. For e.g. a shopkeeper
having keys of warehouse, may take away
goods for his personal use.
Manipulation by management: The
internal control system is devised &
maintained by management.
Manipulation in accounts &
misappropriations perpetuated by
members of management.
18. Dr. B.K. Mehta
Anamika Mehta
Dei study material
Auditing: Kumar