Harmonizing to Strauss ( 2003 ) internal Controls are to be an built-in portion of any organisation ‘s fiscal and concern policies and processs. Internal controls consists of all the steps taken by the organisation for the intent of protecting its resources against waste, fraud, and inefficiency ; guaranting truth and dependability in accounting and operating informations ; procuring conformity with the policies of the organisation ; and measuring the degree of public presentation in all organisational units of the organisation. Internal controls are merely good concern patterns. Similarly, Vitez ( 2010 ) states that internal controls are reappraisals, processs or guidelines to protect and safeguard a company ‘s concern and fiscal Information.
OBJECTIVES OF INTERNAL CONTROLS
Harmonizing to Carrington and Chaderton ( 2004 ) , the aims of internal controls are:
The safeguarding of assets.-Assets are safeguarded and used for concern intents. Internal controls can safeguard assets by forestalling larceny, fraud, abuse, or malposition. One of the most serious breaches of internal controls is employee fraud.
To guarantee concern information is dependable and accurate – Authorizing, recording, and safeguarding are related to set uping the system of answerability and are aimed at the bar of mistakes and abnormalities. The ground is that employees trying to victimize a concern will besides necessitate to set the accounting records in order to conceal the fraud.
To guarantee that Torahs and ordinances are complied with – Businesss must follow with applicable Torahs, ordinances, and fiscal coverage criterions.
To advance runing efficiency to accomplish the coveted ends of the concern.
Control Environment
The control environment creates the foundation for all other facets of internal controls on an organisation. It ensures that direction maintains an ethically sound construction. ( Refer to plot 1 above )
Hazard Appraisal
This is the in depth analysis of all possible hazards the organisation may necessitate to take in accomplishing the house ‘s relevant aims. There may be need for mechanisms to place and cover with particular hazards associated with alterations in the economic system. ( Refer to plot 1 above )
Control Activities
These are the schemes and processs that must be established and applied to decrease all hazards within the internal controls. Control activities occur throughout the organisation, at all degrees and in all maps. ( Refer to plot 1 above )
Information and Communication
As a agency for members of the organisations to pull off their operations responsibly, information and communicating systems need to be enabled internally and externally. ( Refer to plot 1 above )
Monitoring
Internal control systems need to be monitored and modified as necessary by the organisation to back up altering concern conditions. It includes regular direction and supervisory activities, and other actions forces take in executing their responsibilities. ( Refer to plot 1 above )
INTERNAL CONTROL PRINCIPLES
Harmonizing to Weygandt, Kieso, and Kimmel ( 2005 ) , a company follows specific control rules to safeguard its assets and heighten the truth and dependability of its truth and dependability of its accounting records.
Segregation of Duties
Harmonizing to Strauss ( 2003 ) , all work in an organisation is divided up so that no 1 person has control over every facet of the operation particularly for related maps. It is recommended that the individual who keeps the records about an plus should be separate from the individual who has physical detention of the plus.
Constitution of duty
Harmonizing to Weygandt, Kieso, & A ; Kimmel ( 2005 ) , this involves specialisation of the work load. Employees should be assigned to specific assignments because control is most effectual when merely one individual is responsible for a given undertaking. Establishing duty includes proper mandate and blessing of minutess and activities which mean every dealing must be decently authorized if controls are to be satisfactory. The single or group who can allow either specific or general mandate for minutess should keep a place proportionate to the nature and significance of the minutess.
Documentation Procedures
Harmonizing to Weygandt, Kieso, and Kimmel ( 2005 ) , paperss provide grounds that minutess and events have occurred. Documents and records should be:
a?™Pre-numbered consecutively to ease control over losing paperss, and as an assistance in turn uping paperss anytime.
a?™Prepared at the clip the dealing takes topographic point. When there is a longer clip interval, records are less believable and the opportunity for misstatement is increased.
a?™Constructed in such a manner that encourages right readying. Supplying a grade of internal cheque within the signifier or record can make this.
a?™Designed for multiple usage whenever possible, to minimise the figure of different signifiers.
Independent Internal Verification
Harmonizing to Carrington and Chaderton ( 2004 ) , this is the state of affairs where, sporadically, on a surprise footing, an independent single reappraisals, comparisons and reconciles day of the month prepared by another employee.
Physical, Mechanical, and Electronic Controls
Harmonizing to Weygandt, Kieso, and Kimmel, Physical Controls are entirely of import to safeguard assets such as holding locked warehouses for stock list or fencing company belongings. Mechanical and Electronic controls besides help with safeguarding assets. Mechanical controls better the truth and dependability of accounting information such as hard currency registries or clip redstem storksbills which employees use to demo when they arrive. Electronic controls may be in the signifier of electronic burglar dismay systems and telecasting cameras to supervise larcenies.
Other Controls
Harmonizing to Carrington and Chaderton ( 2004 ) , other controls are really general and include:
a?™Rotation of employees to different sections or countries of work
a?™Requirement of employees to take compulsory one-year holidaies.
a?™Requirement of employees to obtain fidelity insurance.
a?™Recruitment of competent forces.
TYPES OF AUDITS
The development of internal control objectives incorporates the range that covers the undermentioned three functional considerations:
Operational
Operational audits review the operation of your concern in order to place possible betterments in efficiency and effectivity, control processs or other specializer areas.A
Conformity
A conformity audit is a wide reappraisal of an organisation ‘s attachment to all corporate legal and regulative duties.
Fiscal
This is the reappraisal of the fiscal statements of a company, ensuing in the publication of an independent sentiment on whether those fiscal statements are relevant, accurate, complete, and reasonably presented on a timely footing.
THE ROLE OF THE AUDITOR
Internal Auditor
Internal auditing is an activity designed to better an organisation ‘s operations. It helps an organisation carry through its aims by conveying a more systematic, disciplined attack to measure and better the effectivity of hazard direction, control, and administration procedures. Professionals called internal hearers are employed by organisations to execute the internal auditing activity. Internal hearers handle fiscal, conformity and operational audits. Internal hearers are appointed by and study to the direction of the organisation. These hearers perform audits yearly.
External Auditor
An external hearer is a professional forces who performs an audit on the fiscal statements of a company, authorities, single, or any other legal entity or organisation. External hearers are appointed by and study to the stockholders of an organisation. Harmonizing to Teck, Etal ( 2007 ) , external hearers must keep the professional makings of Certified Public Accountants ( CPA ) or Chartered Accountants ( CA ) . Audited accounts are performed by these hearers at the terminal of each fiscal twelvemonth.
Audit Committee
The audit commission ‘s function is to guarantee that direction has developed and followed an equal system of internal control.
LIMITATIONS OF INTERNAL CONTROL
Harmonizing to Carrington and Chaderton ( 2004 ) , the restrictions of internal controls are as follows:
The demand to equilibrate the cost of the control with its benefits.
The potency for human mistake.
The possibility deceitful collusion designed to acquire unit of ammunition controls that segregate responsibilities.
The maltreatment of authorization and override of controls, such as telling personal goods through the house. It is really easy for managers and directors of organisations to teach staff to short-circuit normal processs such as the demand for mandate for payments.
The obsolescence of controls – going outdated.
By and large, a house should choose controls where the benefits of usage exceed the costs of execution and operation.
