Internal Controls
An internal control is a method a company uses to ensure the integrity in the business and keeps it running in an effective and efficient way. Internal controls safeguard the assets of the company and prevent fraud from happening. There are administrative controls and financial controls, administrative control is dealing with documents and preventing fraud and financial control is safeguarding assets etc.
The purpose of Internal controls
Internal controls are put to use because this can help a company run effectively and efficiently, internal controls can also stabilize and strengthen your predicted outcomes to make them more accurate, it also safeguards a company’s assets and can detect fraud, errors and theft, for example installing cameras and alarms in the storage area to prevent people from stealing goods, or checking and reviewing the document and files of a company to ensure that there is no fraud and errors. With internal controls in place a company can run smoothly, and doesn’t cause the owner to lose valuables such as trading stock and equipment which can impact the company’s current ratio also known as the liquidity ratio since it affects their inventory.
The role of an internal auditor
Designing the internal control
The internal auditor is responsible to design the controls and develop long range audit plans, they also tests the control systems of a company to find problems in the system; they then give the company recommendations of how they could improve their system and how to make it more efficient.
Implementing the internal controls
The internal auditor is responsible to maintain the controls. While implementing the internal controls the internal auditor m...
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...on that is in charge of the business, not anyone random.
• Each employee must be in charge of specific debtors, this could reduce the possibility of fraud, theft or errors.
Documents and recording
• Every debtor should have their own books and be recorded separately
• All documents must be locked up in a safe
• All accounts should be put in a safe that indicates the time left for them to pay, for example the first level of the safe means that all the debtors have 3 months to pay off their account and the second level means that they have 2 months to pay off etc. and at the end of every month you move all the books one level up and the debtors that didn’t pay should be moved to another safe or dealt with immediately.
• If a debtor pays late it should be recorded and interest should be charged.
• All bad debtors should be considered black listed.
Internal controls is defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance
Internal controls are in place to protect entities against theft from dishonest workers and outside predators. They are also an accurate series of checks and balances and are in place to find discrepancies.
The purpose of the internal audit is to protect Costco 's assets through evaluating the acceptability and efficiency of internal controls; recognizing areas of possible risk, revenue improvement and/or cost reductions; and making sure transactions are authorized, completed, and logged as proposed. The internal auditors are accountable for guiding audits of all Costco’s local and global activities, its affiliates, and other entities Costco conducts business with as deemed necessary by management.
According to PCAOB Auditing Standard 5 paragraph 2, “effective internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. If one or more material weaknesses exist, the company 's internal control over financial reporting cannot be considered
Internal locus of control is how you as a person dictates how their work or personal life is going to go. Meaning the results of something is based on ones behaviors and actions. For example, getting the new job promotion and you knowing that you got the job for your hard work and not because you think, it is out of pure luck.
What is internal control? According to University of Phoenix, Axia College Internal Control and Cash (2009), internal control is all of the related methods and measures adopted within an organization to safeguard its assets and enhance the accuracy and reliability of its accounting records. The primary reasons for internal control are help companies protect their investments and merchandise against theft from everyone, including employees and to make sure that the accounting is done correctly and truthfully.
The audit committee should follow certain criterion to choose internal auditors and external auditors, and also supervise their activities and interaction thus ensuring the function of audit both internal and external.
1. What important internal controls were ignored when LJM1 was created? Internal controls are those company policies that are established to safeguard company assets, to ensure that accounting records are prepared in a reliable manner and to guarantee the achievement of organizational objectives (Wilson & Key, 2011). LJM1 ignored several important internal controls by violating Enron’s code of conduct.
Both roles should ideally be independent of operations, but corporate compliance in reality owns the compliance operation policies and procedures. Internal audits have to be completely Independent. Internal audits also bring attention to the need for monitoring as a result of their auditing function. Corporate compliance ensures that monitoring and auditing occur. As far as follow-up goes, corporate compliance is responsible for such things, while internal audit is just responsible for reporting whether management responded appropriate to obtained information. Both roles are involved in compliance risk. Corporate compliance creates and implements a compliance plan to ensure that compliance risks are addressed. Internal Audit on the other hand, addresses compliance risks as part of risk based audits.
An auditor tests the controls the company has set up for the sales cycle to determine how strong and reliable they are. If they are strong, the auditor can reduce the amount of transaction testing he must do. Common internal controls over the sales cycle include numbered sales invoices, purchase order authorization over a certain limit and authorization over receivables write-offs.
The control environment is a very important part of businesses because it is the foundation of the internal controls. It determines whether the ethical values, procedures and rules that provide reasonable assurance control objectives are met. If a business has a poor control environment, their business will not last very long, like Barings Bank.
Controlling in management is a function of management that is concerned with making sure that all other functions of the management are put in place and operated effectively. Controlling ensures that it has taken into consideration the monitoring of the output of the employees as well as the establishing standards of performance that will guarantee that the performance of the will always meets the set standards (Spellman,
Controlling is the fourth management function and its purpose is straightforward- to make sure that actual performance meets or surpasses objectives. It is well used for decision making and problem solving. Effective control depends on other management functions and it gives feedback to them. These functions are planning, organizing and leading. Planning sets directions and allocates resources. Organizing puts people and material resources together in working combinations. Leading motivates people to use these resources in the best way. Basically, the function of controlling is to make sure that the right things happen in a right time and in the right way.Control helps that overall directions of individuals and groups are consistent with short-range and long-range organizational plans. Also, it helps to ensure that objectives and accomplishments are coherent with one another throughout an organization. Moreover, it helps maintaining fulfillment with essential organizational rules and policies. Good example where we can see role of control is in helping to protect individual rights to become equivalent with employment opportunities at work. The control process practiced by managers includes four steps: 1) establish objectives and standards 2) measure actual performance 3) compare results with objectives and standards and 4) take actions if necessary1. The controlling process starts with establishing performance objectives and standards which means that the controlling process begins with planning. Performance objectives should be defined and associated with specific measurement standards for determining how well they are accomplished. Standards are the targets of performance. The next step of the control process would be measur...
Overall, the company is having ineffective controls regarding different departments and in the whole organization. An effective internal audit department should be established within the organization which should test the effectiveness of these controls on regular basis and make it sure that all controls are working effectively and efficiently with the different departments of the organization. Also the Internal auditor should implement the most effective processes and measures to prevent and detect the fraud, corruption and non compliance with the laws and regulations in the organization. Establishment of internal audit committee would be helpful in this regard which comprises of executive and non executive directors.
Audit is a process to evaluate and review the accounts and financial statement objectively. We can divide it into internal auditors and external auditors. Internal auditors have a inner knowledge of business process. Auditor has access to the much confidential information and all levels of management. But they may lose their judgement and they are not acceptable by the shareholder. “The overall objective of the external auditors is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to report on the financial statements in acco...