The intent of internal control is of primary importance in organisations taking into consideration its influence on the efficient production of the organisation. Internal control mechanisms of an organisation is firmly linked to the edifice used by management of the organisation to mastermind the activities of the entity. Internal Controls assist in safeguarding funds, providing prudent management of assets, and ensuring accuracy in financial accounting. It is said that internal controls has a direct function, that is, to detect fraud and error (Kieso, 2010). Internal control is a complete system of controls, financial and otherwise, instituted by management in order to move on the business of the organisation in an organized and resourceful mode, which ensures compliance to management policies, safeguard its assets and protect as far as possible the wholeness and correctness of the records (Millichamp, 2002).
Internal control has become a tool for management which both profit and non – profit organisations consider very important. Wilhelm (2006) argued that internal control is of important for organisations which are not in business to make profit and depend on the trust of the public more than organisations which are in business to make profit. Inappropriate internal controls will lead to misappropriation of properties, corruption,
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This may be circumvented by collusion among people or inappropriate management will override control. In order to deal with these inherent risks, internal Audit function is necessary to be part of the church’s organisational structure. An important aspect of the organization monitoring system is the internal audit function. Internal audit investigates and appraises internal control and efficiency with which the various units of the organisation are performing their assigned function and reports their findings and recommendations to top
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.
Without such controls it would be difficult for most business organizations like Trinity Industries with numerous locations, operations, and processes to prepare timely and accurate financial reports. Since no control system can guarantee that financial statements will not contain material errors or misstatements, an effective internal control system can reduce the risk of misstatements. Internal Controls should therefore be designed and implemented with the risk of fraud in mind and tailored to the circumstances of the company. In the case of Trinity part of the SOX project was to identify key process, by interviewing organizational members to understand how the processes and controls worked within the company, and who was responsible. With guidance from PCAOB AS No.5 they identified the gaps of controls and took steps to close them.
In conclusion, internal controls include separation of duties, assignment of responsibilities, third-party verification and the use of mechanical and physical controls. In and of themselves, these tactics stop and prevent much abuse of the bookkeeping and accounting systems. The addition of Sarbanes-Oxley requirements in 2002 require that a company enact internal controls and assign responsibility of the control system to executives and directors, further providing insurance that financial reporting is accurate. Without this insurance that reports are accurate, company stock will fall and investors will be lost. Even with intrinsic limitations, the positive aspects of good internal controls far outweigh the negative implications. Good internal controls equal accurate financial records and future company success.
There are six principals of internal control that apply to most enterprises. Establishment of responsibility- gives only one employee responsibility over a certain task. Someone is less likely to steal if they are the only person that can be linked back to a task. Segregation of Duties- different people are responsible for related activities and record keeping for assets is kept separate from physical custody of assets. Physical, Mechanical, and Electronic control- Physical
In turn, the internal controls within a company may be interpreted as the outcome of their risk management procedure established during the ‘planning and budgeting’ process. Lanen, Anderson, & Maher (2014, p. 471) state that “internal controls provide management with reasonable assurance that their company’s assets are protected and the company’s accounting is reliable”. For instance, one procedure that management would have in place that would safeguard the resources of the company is separation of duties. To elaborate, with a strong separation of duties in place within a company, each activity that occurs within the company is fulfilled by more than one individual. As such, this would decrease the likelihood that a sole person would be able to successfully steal or manipulate the company resources in some fashion. In addition, the procedure prevents one person from overseeing all of the operations occurring within one activity, which may prove to be overwhelming. Thus, if an employee is unable to handle a certain aspect of a required duty in a particular activity, then it will be assigned to someone who is qualified (i.e. more
Internal controls are the controls and preventive measures that a business should consider adopting in order to prevent and mitigate cash losses from dishonest schemes by employees, customers, and other parties it deals with. Every business should institute and enforce internal controls that are effective in preventing fraud.
While the external control prescribes the use of new rules, adoption of new legislation or the institution of new regulations to cover up loopholes, the internal control involves personal character that has developed over time. External control is stated to be the code of ethics (Cooper, 2012). For example, in the conduction of the activities of the ABC Foundation, there is a requirement for balance between these internal and external controls. The external control ensures discourages inclinations to self-interest by the members of the organization, while internal control ensures socially constructive, idealistic, and creative impulses. These leads to the timely implementation of their duties to the various countries the ABC Foundation serves all over the world.
In today’s business world, an accountant and business owners should work together in order to become aware of scandals that occur in corporate companies. Since 2008 a series of corporate scandals and collapses have highlighted the importance of effective board oversight. One of the largest scandals in the corporate world was known as the Madoff’s Ponzi scheme. I will discuss the details of how an accountant allowed Maddoff to continue with his involvement in the Ponzi scheme. Since then, the board of accountancy is mandating that all corporate companies have good internal controls and getting more involved managing risks within the organization. This is becoming an essential role in maintaining a good system of internal control.
A business can either take a step forward or a step back depending on the external and internal influences and how they handle them, they can either flourish or enter stages of degradation and cessation. External and internal influences on a businesses plays a part in the opportunities that arise in the industry the business operates in, otherwise the business may choose to venture out of it’s defined industry depending on the opportunities at hand. Businesses are affected by internal and external influences to a degree where they are either benefiting or suffering from the way they handle opportunities that arise. The five articles depict the problems encountered by businesses no matter their size or industry.
It is important to develop and maintain internal controls inside nonprofit organizations because they assist in maintaining ethical standards. According to the National Council of Nonprofits (NCN) internal controls are financial management practices which are systematically used to prevent misuse and misappropriation of assets
The companies will begin to implement its enterprise risk management system by developing an appropriate internal control and corporate governance system. In the wake of high-profile corporate scandals and subsequent regulatory legislation, reporting internal controls has become a requirement. These requirements have led to organizations viewing risk management as an area of vital importance.
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...