Internal control and It's components

Internal control and It's components

1. Internal control is defined as:

   • Is a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
     • Effectiveness and efficiency of operations
     • Reliability of financial reporting
     • compliance with applicable laws and regulations
     • safeguarding assets against the unauthorized acquisition.
     • The importance of internal control:
       • The term internal control system mean all the policies and procedures adopted by the management of an entity.
         • • Everyone in the organization has responsibility for the internal controls.
         • The auditor is interested primarily in rules that relate to the reliability of financial reporting.
         • Different sides of internal control
           • Administrative controls
             • Are primarily concerned with the promotion of operational efficiency and adherence to prescribed managerial policies.
           • Accounting controls
             • Are principally worried about safeguarding assets and assurance that the financial statements and the underlying accounting records are reliable.
           • Components of internal control
             • Control environment
               • Means the overall attitude, awareness and actions of directors and management regarding the internal control system.
             • Risk assesment
               • If management effectively assesses and responds to risk, the auditor will typically need to accumulate less audit evidence.
             • Control activities
               • Are they those policies and procedures which management has established to achieve the entity's specific objectives.
             • Information and communication and monitoring
               • The information must be identified by management as relevant and delivered to people who need it.