1- Internal control: concept, objectives and components

INTERNAL CONTROL
    Serial Number
    Contents
    Page Number
    1.
    Internal Control concept
    3-4
    2.
    Objectives of Internal Control
    5-6
    3.
    Components of Internal Control
    7-8
    4.
    References
    9
INTERNAL CONTROL CONCEPT
Internal control is the system that is implemented in an organization by the senior level of management so that the operations of the business can be conducted in such a way so that the objectives of the business can be achieved and also complying with the law in force. It is the plan as made by the organization which helps the management of the organization to ensure efficient working of the company. Internal control are implemented in both the financial and non-financial operations of the organization and aims at safeguarding the assets and the keep a check that the accounting data as prepared by the company of the transactions of the organization with accuracy and the data prepared is reliable. If the internal controls as maintained by the organization are appropriate the operations of the organization are effective and efficient and also the financial reporting are reliable and are compliant to the law and regulations for the time being in force. The internal control system also helps the auditor to determine the level of risk during the audit procedure. If the internal control system of the organization is appropriate the risk level as set by the auditor will be low as the organization has been operating diligently. The management of an organization has to monitor the actions that are taken by the employees and managers at different level to keep in check the various errors that may occur because of the decision taken.
There are various types of internal control system out of which the following three are the most important:
1. Preventive Control: As the name suggests, these are the internal control methods that stops the errors from happening in the organization. These systems are implemented in the organization so that the mistakes or irregularities do not happen in the first hand. Due to these internal control systems, checks are implemented before the mistakes from occurring. These controls systems avert the negative event from occurring itself. Due to these control systems the mistakes are administered at the earlier stage and the mistakes are not occurred and therefore the organization is able to maintain the operations are an appropriate manner.
2. Detective Control: In this system of internal control, the mistakes and errors that have already been occurred in the organization for what so ever reason, the management uses this system to identify and detect these errors with the aim of improvement and correction of such error and to understand the root cause of such errors. If the management is able to understand the reason for occurrence of such errors, appropriate actions could be taken up by the management to correct the errors already occurred and also to design the future internal control system in a way so that these errors are not occurred in the future.
3. Corrective Control: In the corrective control system, the check points are designed in a way to rectify and correct the error already incurred in the organization. The management of the organization using the detective control measures, identifies the irregularities and by using the corrective control, the organization correct such irregularities and mistakes. This internal control method is not proactive in nature but plays its role after the error has occurred in the organization. This control measure generally takes place after the discovery of error in the detective controls and helps the management to decide what disciplinary actions are required to be taken post occurrence of error.
OBJECTIVES OF INTERNAL CONTROL
The main objective of the implementation of the internal control systems in an organization is to conduct the operations of the organization. Some of the objectives of the internal control are as follows:
(i) Authorization: The internal control system ensures that the transactions in the organization are properly authorized and approved by the person responsible for the job. Sometimes the people in power and control make their personal interest important that the...