Introduction
Internal control does not have to be limited to financial matters. It has a broader scope. It is responsible for the overall management system's control. Financial or non-financial control is possible. The key goals, however, are to protect all of the entity's assets, to manage the business smoothly, and to ensure that all of the records are accurate and reliable. As a result, the control may extend to the books of accounts. Internal control could apply to production or even quality.
Management is in charge of internal control. Management is responsible for not only developing but also ensuring that a sufficient system of internal control is in place. The recording of false or fraudulent transactions would be uncommon in an environment where internal control is strong. The chances of account or document fraud would be minimised to a bare minimum. Where, on the other hand, there is no internal control system or one that is ineffective, the risks of fraud and error are higher.
Internal control at the client's organisation should be studied and evaluated by the auditor. He should determine whether or not the system is adequate. The amount of the test checks that the auditor may do during the audit of such an organisation will be determined by the appraisal of internal control.
Meaning
Internal control refers to an organization's plan as well as all of the coordinated processes and measures used within a company to protect its assets, ensure the integrity and reliability of its financial data, improve operational efficiency, and encourage adherence to specified managerial standards.
Internal control is a set of procedures implemented by a company's board of directors, management, and other employees to provide reasonable assurance that:
- That information is trustworthy, correct, and current.
- Laws, regulations, agreements, policies, and procedures must all be followed.
- In terms of financial reporting's trustworthiness.
Internal controls are designed to detect and prevent errors and anomalies, as well as identify and correct problems. Because controls are incorporated into operations, many process owners in your department perform controls and engage with the control structure on a daily basis, often without even recognising it.
Certain fundamental principles are reflected in the control definition:
- Internal control is a procedure that must be followed. It serves as a means to an end rather than an end in itself.
- People have an impact on internal control. People at all levels of an organisation are affected, not just policy manuals and forms.
- Internal control can only provide reasonable, not absolute, assurance to a company's management and board of directors.
Internal controls are put in place to help strengthen:
- Information accuracy and consistency Adherence to rules, plans, procedures, laws, and regulations
- Asset protection is important.
- Resources are used in a cost-effective and efficient manner.
- Achieving pre-determined objectives and goals for operations or programmes.