Internal Control can be considered as a proactive armor for any industry in order to achieve organizational objectives. Better and effective understanding of internal control can help you to identify internal risk factors and manage your business from any fraudulent activities.
Committee of Sponsoring Organisation of the Treadway Commission (COSO) has defined internal control as an integral process in making financial and business decisions. It is taken as a process imposed by the board of directors, employees, and management, developed to give reasonable provisions and assurance in relation to managing business objectives by monitoring the following activities: control environment, risk assessment, financial & investment decisions, and managing the reliability of financial reporting.
Understanding of Internal Control System:
The motive to understand internal control systems is to assure employees with internal risk management and assessment guidelines related to financial, operational and managerial activities in order to identify the ways and measure the effectiveness of policies and regulations. Effective use of internal control systems may protect your business from financial, operational and strategical threats and frauds. In financial reporting and auditing processes and terms, it ensures that organizations remain operationally strong and effective.
Perfect regulation and terms of internal audit help you to reduce the risk of asset loss, you get the surety that whatever the plan you have made and executed, it is accurate, effective and complete. So, effective internal control management relies on the reasonable assurance that your implicated plans are being followed and achieved its financial reporting standards.
Significance of Internal Control:
Effective internal controls policies help you in managing your business objectives in two ways: First, it minimizes the possibilities of unintentional mistakes and intentional fraudulent activities that could, directly-indirectly, harm your organizational plans, if not get controlled. Second, it assists you to identify every minor error before they convert into huge problems. You can design internal controls in a customized manner to control and monitor an error before it may create a critical situation for your organization.
Internal control systems give proper surety of authorization management, recordation maintenance, and financial transactions. According to Generally Accepted Auditing Standards (GAAS), the design of internal control systems depends on the activities of financial reporting assertation. This process includes plans such as financial investment, contributions, participating data, information records, planning obligations, and administrative expenses. Successful implementation of effective internal control plans matters due to the following reasons:
Effective Business Commitment:
The implementation of successful internal control policies depends on the management’s commitment and assistance. It is required in any organization not only to make each employee expert but also to make them aware of risk assessment activities in order to achieve organizational objectives. Effective internal control strategies strongly encourage and enhance business responsibility to attain business objectives successfully.
To Monitor & Control Business Activities
Critical business activities cannot be controlled without successful planning and implementation of internal control. Effective policies and regulations of internal control are required to monitor business operations and assess the work quality and performance of employees from time to time. Effective monitoring activities provide surety that your implicated internal control systems provide the protection and effectiveness you envisioned.
Periodically Review of Financial Activities
Accurate and timely implemented internal control policies help any company to identify and regulate financial activities according to the requirement. Through effective monitoring and review of financial reviews, the financial team can measure reasonable changes occurred timely and take corrective action, if necessary. Internal controls are also essential for controlling periodic review activities such as staff turnover, plan maintenance, mergers, and acquisitions in the business. These can be frequently reviewed by management with the help of internal controls and ensure their effectiveness to other stakeholders
Successful Implementation of Financial Practices
Your financial plans, implementation of financial policies, and auditing regulations for business security, all are the part of internal control procedures. Before thinking about business success, it is important to recognize the essential elements of satisfactory policies of internal control. The implementation of internal control policies helps in managing appropriate segregation of business responsibilities and rights in order to reduce fraud and mistakes that may occur eventually. It makes personnel comfortable and qualified to perform their task and duties effectively. Sound practices and procedures help top management segregate duties as per requirements and organizational functions.
An organization needs proper and effective control of financial activities, it is necessary to make sure that the appropriate protection procedures would be taken to prevent fraudulent activities and threats. Taking proper and effective consultation from an auditing and internal control advisor will help you to avoid any uncertainty & increase your business values. For effective assistance, you are recommended to consult with the internal control advisor today.