Characteristics of an Effective System of Internal Control
Characteristics of an Effective System of Internal Control
1.) In accounting systems, certain controls are needed to ensure that employees are doing their jobs properly and ensure that the system runs properly. These checks are in the best interest of the organization. These controls come in the form of internal controls for the system. The internal controls are the checks that are placed in the system by the company's own management to prevent the intentional misrepresentation of financial data for one party’s gain at the expense of the organization. Fraud is the primary reason that internal controls are essential in safeguarding assets.
To have an effective system of internal control, five objectives must be met. The first, and most important, is the safeguard of assets. If the organization fails to secure assets such as cash or inventory, those assets will silently slip away over time. Second, the employees must be encouraged to follow company policy and work towards the company’s goals. This involves setting in place a set of clear policies that provide fair treatment for all. This leads to the third objective, which is promoting operational efficiency. When employees follow company policy, resources are utilized at maximum capacity, which minimizes waste, lowers cost, and raises profits. Fourth, the company must ensure accurate and reliable accounting records, which are essential in measuring the health of the organization. Without doing so, the company is operating in the dark. Lastly, to maintain legitimacy, the organization must comply with legal requirements. Otherwise, it would not be permitted to conduct business and would cease to exist as an entity.
There are also five different aspects involved with the implementation of internal control. It begins with creating a control environment, which starts at the owner and top management level. They should set the example for their employees on how to act ethically within the business and
To have an effective system of internal control, five objectives must be met. The first, and most important, is the safeguard of assets. If the organization fails to secure assets such as cash or inventory, those assets will silently slip away over time. Second, the employees must be encouraged to follow company policy and work towards the company’s goals. This involves setting in place a set of clear policies that provide fair treatment for all. This leads to the third objective, which is promoting operational efficiency. When employees follow company policy, resources are utilized at maximum capacity, which minimizes waste, lowers cost, and raises profits. Fourth, the company must ensure accurate and reliable accounting records, which are essential in measuring the health of the organization. Without doing so, the company is operating in the dark. Lastly, to maintain legitimacy, the organization must comply with legal requirements. Otherwise, it would not be permitted to conduct business and would cease to exist as an entity.
There are also five different aspects involved with the implementation of internal control. It begins with creating a control environment, which starts at the owner and top management level. They should set the example for their employees on how to act ethically within the business and