Ensuring accuracy, completeness, reliability, and timely preparation of accounting data.Prevention of fraud, detection of fraud.Prevention of error, detection of an error.Safeguarding the assets in adherence to management policy.Efficient and orderly conduct of accounting transactions.Internal control, as it applied to the accounting system, implies control over accounting system to achieve the following objectives: Internal control areas spread over accounting and non-accounting spheres.
Internal Control – Accounting, Administrative Controls Internal control helps to put moral pressure on staff.Internal control helps the management to prepare and implement effective plans by providing correct and factual information.Internal control helps to regulate the work of staff through a division of work among the staff in a scientific manner, which helps to make the daily works of staff effective.Internal control helps to increase the accuracy and reliability of financial statements and books of accounts.Internal control helps the auditor in his/her work, detecting all the errors and frauds which are committed in the books of accounts.Internal control helps to implement management policies to attain corporate goals.
Internal control helps to protect the assets of the business from misuse, theft, accident, etc.Advantages of Internal ControlĪpplication of internal control provides the following benefits to the various parties: The arrangement of the work should be in such a manner that a written record of the part played by each employee should be maintained, and the work should pass through several hands in a well-defined manner. The work should be so arranged that work done by one employee should be promptly checked by another independent employee.Ĭlear and well-defined rules should be laid down and practically followed, relating to dealing with cash, ordering, receiving and issuing goods, etc. The rotation principle relating to the transfer of an employee from one job to another should be the inflexible guiding rule. Nearly all frauds have been committed by trusted officials or employees. Too much confidence should not be pinned on one individual. Responsibility for the performance of the job must be clearly stated so that there may be no room for doubt or confusion subsequently. Internal control is based on the following principles:įinancial and accounting operations must be separated, i.e., handling of cash and the recording of the movement thereof should be done by different persons. Preventive: Designed to keep errors irregularities from occurring in the first place.Corrective: Designed to correct errors or irregularities that have been detected.Detective: Designed to detect errors or irregularities that may have occurred.Most of these reasons funnel back to the ultimate objective that the company continues to operate.įor example, if the company failed to comply with relevant laws and regulations, it might be forced to stop operations. Ensuring the company complies with relevant laws and regulations.Ensuring the continuing effective functioning of the company.
The reasons for internal controls can be seen in the example.