Objectives of Internal Control

Save

Internal controls are techniques employed by managers to ensure that specific control objectives are continuously met. Controls can be implemented to protect anything of value to a company's economic performance or continued sustainability. Common objectives of internal control systems include the propriety of transactions, reliability of information, compliance with regulations, security and efficiency.

Propriety and Reliability

  • An important objective of internal controls is to ensure that all monetary transactions conducted by the organization are in line with the company's operational activities. Controls in this area are focused around accounts payable and accounts receivable, ensuring that money is not being lost, stolen or posted to erroneous accounts. Division of a cash payment and receipt-related tasks among several employees is a good way to control these errors, as is the use of internal auditing software.

    The timeliness and reliability of information is another key concern addressed by internal controls. Management relies on information gathered throughout an organization to make critical decisions, so it is vital that incoming information is accurate. Internal controls of information should provide transparency and accessibility throughout all levels of your organization to ensure that key decision makers have access to the same primary data at the same time.

Compliance

  • Compliance with government regulations can require significant investments of time and money. Implementing internal controls to maintain compliance with applicable laws can help you avoid costly legal consequences as well as greatly reduce the costs associated with compliance-related activities.

Efficiency

  • Efficiency is very important to the achievement of competitive advantage and the maximization of profitability. Effective internal controls can ensure that all tasks are being completed according to standards and that all quotas are being met. Performance reviews, best-practice operational procedures and the use of kanbans are effective internal controls of efficiency.

Safety and Security

  • Safety plays a large part in any system of internal controls. Rules and procedures play a vital role in maintaining a safe atmosphere for your employees and customers. Policies such as hard hat requirements, two-person ladder operation and "wet floor" sign usage help you and your business avoid devastating lawsuits.

    Security is very important to organizations such as banks that keep valuable assets in employee work areas. Physical controls such as locks and logged keycard access points are highly effective in this area. Policies such as requiring anyone entering a bank vault or handling money to be directly supervised can also play a part in controlling security.

Considerations

  • There are many strategies available for creating and implementing an effective system of internal controls. Physical controls, policies, organizational structure, division of task components and internal auditing are all vital tools to aid you meeting your objectives. Consider your specific objectives when deciding which types of internal control methods are the most effective and cost efficient for your organization.

References

Promoted By Zergnet

Comments

You May Also Like

  • Internal Controls Testing

    An organization's operating procedures, processes and mechanisms are the backbone of its risk management system. These procedures, often known as internal controls,...

  • How to Design an Internal Control System

    Designing an internal-control system for your business takes planning and an understanding of the detailed operations of the company. Internal controls serve...

  • What Are the Seven Principles of Internal Control?

    When creating an accounting system, businesses and nonprofit organizations must establish a framework for internal control. The internal control process helps to...

  • Objectives of Accounting Information Systems

    An accounting information system provides accurate and timely financial information for internal management purposes. While these systems can include paper manuals and...

  • Internal Control Procedures in Payroll

    Internal controls for payroll exist to ensure payroll is properly disbursed to the appropriate employees, that it's accurately recorded and that the...

Related Searches

Check It Out

Are You Really Getting A Deal From Discount Stores?

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!