Internal Controls in Accounting

Internal Controls in Accounting

Internal control is an accounting and auditing term, used primarily to denote the systems designed to help the organization achieve its goals and objectives, by making sure the various structural components of the organization such as hierarchy, management information systems, human resources and the flow of information remains functioning according to established protocol. Another important function of internal control is to minimize the incidence of fraud and mismanagement and to protect the property of the organization, both physical (goods, machinery) and intangible (goodwill, brand name).

Accounting is a system of record keeping and data reporting, however, this data must be checked and re-checked before it can become part of the books of accounts, as they reflect the financial position of the organization to both, the management and the investors. Internal controls ensure that any deviation or error in the information flow is immediately identified and suitable steps taken for its rectification.

Internal control has been defined by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as a process, effected by an entity's board of directors, management and other personnel. This process is designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations. The definition further explains internal control as:

➤ Internal control is a process. It is a means to an end, not an end in itself.
➤ Internal control is not merely documented by policy manuals and forms. Rather, it is put in by people at every level of an organization.
➤ Internal control can provide only reasonable assurance, not absolute assurance, to an entity's management and board.
➤ Internal control is geared to the achievement of objectives in one or more separate but overlapping categories.

There are many statutory requirements that have to be fulfilled by companies worldwide. Accounting standards and controls are some of the essential compliances that not only help the companies manage their finances well, but also help them to keep track of liabilities, duties and taxes. The laws regarding internal controls in public corporations are especially stringent due to the fact that public money and the common man's interest is to be safeguarded with the help of such controls.resource: http://www.buzzle.com/articles/internal-controls-in-accounting.html