Justification for an Internal Control System
Organizations exist to carry out their set goals and objectives. To achieve these goals, they must have a set of rules that direct their efforts toward the achievement of these goals and objectives. With this the need for a system of internal controls comes in. An internal control is a set of policies and procedures put in place by the management of an entity to help it achieve its goals. “Internal control is a set of rules that provide reasonable assurance regarding the efficiency and effectiveness of operations; the reliability of financial information; the compliance with applicable laws and regulations. Its objective include the promotion of orderly, money-saving, and effective operations and quality products and services consistent with the organization’s missions; safeguarding of resources against loss because of waste, abuse, mismanagement, errors, and fraud; adhering to laws and management directives, developing, and maintaining reliable financial and management data and fairly disclosing that information in timely reports. ((Sawyer, 1996). This paper will present the need for a system of Internal Controls is important in an organization.
Regardless of the size, internal controls play a crucial role in any organization. It has five basic components that include control environment; risk assessment; control activities; information communication, and monitoring. The control environment sets and directs the tone at the top of the organization. Risk assessment identifies and analyzes the relevant risk that may stand in the way of achievement of organization’s objectives. Control activities are the various policies, rules, authorizations, verifications, reconciliations, methods and procedures necessary to bring about the achievement of goals and objectives. Information communication is the component that conveys the data needed for various organs of the organization to conduct their...
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