Introduction
Internal control is an important concept for any organization to consider, as it is a set of processes and procedures used to ensure the integrity of financial information, safeguarding of assets, and the accuracy of financial reporting. Internal control is an important risk management tool that helps organizations to identify, measure, and manage the risks associated with their various activities. This article will discuss the various principles of internal control and how they are used to ensure that organizations are in compliance with financial regulations.
Definition
Internal control is a system of policies and procedures designed to promote reliable financial information, safeguard assets, and ensure compliance with applicable laws and regulations. This system of internal control is also known as the control environment, which is composed of an organization’s policies, procedures, and other elements that promote an effective system of internal control. The main goal of internal control is to ensure that the organization’s assets are managed and protected in an effective manner.
Principles of Internal Control
There are five main principles of internal control that can be used to ensure that organizations are in compliance with financial regulations:
1. Establishing Responsibility: This principle requires that each employee is assigned specific duties and responsibilities, and that each employee is accountable for their actions.
2. Segregation of Duties: This principle requires that duties and responsibilities are properly segregated among different individuals, so that no single individual has complete control over all aspects of a transaction.
3. Documentation Procedures: This principle requires that all transactions are properly documented and that all documents are properly maintained.
4. Physical Controls: This principle requires that physical access to assets is restricted and that all assets are properly safeguarded.
5. Monitoring: This principle requires that the effectiveness of internal control is regularly monitored and that any deficiencies are promptly addressed.
Conclusion
Internal control is an important risk management tool that can be used to ensure that organizations are in compliance with financial regulations. The five principles of internal control can be used to ensure that the organization’s assets are managed and protected in an effective manner. It is important for organizations to consider implementing and monitoring internal control systems in order to ensure that they are in compliance with financial regulations.
References
American Institute of Certified Public Accountants (AICPA). (2010). Internal control-integrated framework. Retrieved from https://web.archive.org/web/20150401214853/http://www.aicpa.org/InterestAreas/FRC/AssuranceAdvisoryServices/DownloadableDocuments/PCAOB/Internal_Control-Integrated_Framework.pdf
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2017). Internal control-integrated framework. Retrieved from https://www.coso.org/Documents/COSO_Internal-Control-Integrated-Framework-2017.pdf
McGraw-Hill. (n.d). Principles of internal control. Retrieved from http://www.mhhe.com/business/accounting/wild/graphics/wild7e/internal_control.htm