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Internal control (review of literature
Internal control (review of literature
Components of internal control essay
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Internal control in this company can refer to both administrative and accounting control.
1. Administrative control comprises the plan of organization and all methods and procedures that facilitate management planning and control. Examples are departmental budgeting procedures and reports on performance.
2. Accounting control comprises the methods and procedures that are mainly concerned with the authorization of transactions, the safeguarding of assets, and the accuracy of the financial records. Good accounting controls help maximize efficiency; they help minimize waste, unintentional errors, and fraud.
There are five key elements of internal control: environmental control, risk assessment, control procedures, monitoring and information and communication. Each area contributes an essential part of the control system in accounting information system as a whole, and without all of the key elements present, the controls and control system doesn’t work.
Environmental Control
The environmental control refers to management and employee attitude and behavior.
The goals and objectives of management will affect employee behavior and attitude throughout a business. For example, the goal and objective of the management is to achieve certain sales levels at all costs, this will discourages employees to adhere to the internal controls in place and encourages achievement of what management wants, never mind the consequence. So, to ensure employees adhere to internal control, the goals and objectives of management must communicate well and clearly to them. As a result, human resources department will then provide much of the input for effective environmental control.
Risk assessment
Risk assessment incorporates a businesses ability to analyze business risks, estimate their importance and react or act accordingly. Risk assessment is generally a managerial function, but can be included in a day to day analysis by employees, if the work environment includes risks and dangers.
Control Procedures
The next element, the control procedures simply provides the stated methods for carrying out the environmental controls, the risk assessment, the monitoring, and the information communication that must take place in the internal control process. In order to decrease the potential for fraud, inadequately trained personnel, and eliminate process error, control procedures benefit the company, the management, and the employee of a business. Control procedures greatly affect the information and communication aspect of the business, in that so much of the communication of the state of the business is dependent upon the information furnished by each department. The checks and balances that the control procedures provide assures a business that each department will provide timely and honest as well as accurate and useful information.
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 functions of managerial accounting include planning, decision-making, controlling, and evaluation. To make good decisions, managers must constantly adapt to technological changes, changes in the organization's needs, and new approaches to other functional areas of business-- marketing, production, finance, organizational behavior, and corporate strategy. Planning is the setting of goals and developing strategies and tactics to achieve them. Controlling is concerned with achieving the goals and evaluating performance. The success of an organization lies heavily on the shoulders of those making these decisions.
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 various reasons why risk assessments are put in place. Risk assessments can be used to assess the environments that we work in, the risks staff may be exposed to, the risks to the individual and the risks of the equipment that is in place. Once the risk assessment process has been completed it will help all concerned to thin about ant potential hazards there may be in the situation or activity and the ways risks to the individual others cane be minimized. Taking risks is part of being able to choose and be in control of your life. It is important that concerns about risks do not get in the way of people living their lives in the way they want to. We must ensure we make the individual aware of all risks for them to be able to make their
Risk is the possibility of injuries or accidents occurring in your settings. Every individual health and social care settings has its own hazards which poses a potential risk. Risk assessment must be use to evaluate and minimise the risk if they are inseparable from the person centred care of the user. The risk factors in the care setting could have psychological, social, financial and physical instabilities.
In this approach, the focus will be on the internal control objectives so that the control design can be well assessed. First, the auditor will define the control measures and objectives and then find out which measures already installed meet the objectives (Tyrer, 1994).
In controlling, organization has lots of risk factors .Manager take some employee who is able to control and handling risk factors.
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...
According to business, or any organization, Accounting plays a major role in developing and growth of the business. Financial standards of the organization expected as the complexities of business growth and expansion. Hence determining the implementation of the standards can vary according to the type of industry, business or organization.
The control process is the process to make sure that, whoever is in controlling in the company that the company is going to the right direction the management and operations controls the company is in the right condition before, during and after the control process. The strategy control is concerned about the strategy is being implemented, detecting problems areas and suggesting that the strategy is right or not right, making adjustment necessaries. Operational control is the oppositte of strategy control. Operations Control make sure the actions based on operating control have been implications for strategy controls.
Organizational control is without a doubt one of the most significant components within managerial function. Driving an organization’s operations, output and performance, managerial control ensures that the strategic goals of an organization are realized such that any deviations from the standards receive appropriate correction for the realization of better performance outcomes. Actually, Griffin (2011) describes management control as the systematic effort for setting the performance standards with the planning objectives and designing feedback systems. As highlighted by Griffin (2011), management control determines if there exists any deviation while also comparing the actual performance/output with predetermined standards and taking appropriate actions.
Ashbaugh-Skaife et al (2007), clearly understood reporting mechanisms exist to alert senior management to new and changing risks regarding financial statements, reliable controls are embedded in day-to-day operations to manage risks and to enable compliance with relevant legislative financial management requirements , ineffective or unnecessary controls are identified and replaced/corrected to reduce costs and/or reallocate resources and adequate monitoring of internal controls is in place to ensure that they are applied effectively and appropriate action is taken when control breakdowns are
Internal control, accounting and auditing , as defined in an organization's operational efficiency and effectiveness , reliable financial reporting , and laws, regulations and policies to ensure uyumhedeflerineulaşıl is a process . A broad concept of internal control includes control all risks to an organization .
The purpose of risk management is to protect an organization’s valuable assets information, hardware, and software. The purpose of risk management process is to identify and manage risks in such a way that a company is able to meet its strategic and financial targets. Risk management is a continuous process, by which the major risks are identified, listed and assessed, the key persons in charge of risk management are appointed and risks are prioritized according to an assessment scale in order to compare the effects and mutual significance of risks. It is very important that the organizations and business to be very well prepared to see what kind of risk we are facing, or the business can suffer in case of a major disaster.