Internal Control in Organizations - PDF
Added on 2021-06-14
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1INTERNAL CONTROL IN ORGANIZATIONSNameCourseProfessorInstitutionLocation of institutionDate
2IntroductionAccording to Hall (2012), accounting information system is a computerized process witha set of procedures by which financial and accounting data are collected, processed anddistributed to end user for example decision makers, suppliers and stakeholders. It is vital for abusiness to store its financial information accurately. The accounting information system helps inthe effective and accurate storage of the information. Business transactions and expendituresinformation are easily stored compared to the traditional method of approaching this accountingactivity. Mostly, this information is used in auditing, planning and reporting. As assertedbySajady, Dastgir and Nejad (2012), it has been observed that the use of this system helps indecision making and internal control (p.51).Internal controlInternal control is a process by which directors, managers and other business leadersensure that the business achieve its objectives in operations that are efficient and effective,produce reliable financial report, the operation are compliant with the laws and regulations andthe organization assets and properties are protected or safeguarded (Brett, Alison, Karin, Yvetteand Derek 2012, p.291). However, for an effective internal control, the relevant parties shouldobserve the five components of internal control. They include; control environment- this highlyinfluences the success of the organization objectives (Hilton and Plitt, 2013). Through effectivecommunication the management ensures that there is commitment and competence by assigningduties to the relevant staffs and ensure that the integrity and ethical values are uphold, It shouldconduct risk assessment to identify risks that may hinder the organizations from achieving itsobjectives, it should ensure that information and communication is effectively done at all levels,it should control activities within the organization to ensure that all operations risks are mitigated
3and are in line with the set objectives and perform regular monitoring of all the operations. Thesecomponents are interrelated and an organization cannot effectively operate without any of them.Organization objectives that are set according to its vision and mission, are analyzed through theinternal control and the identification of the risks helps to set the appropriate strategies forachieving the objectives (Malmi and Brown 2008, p. 290).Through the internal control, themanagement is able to assign responsibilities appropriately in accordance to organizationdivisions or departments. Therefore, internal control is key in an organization.Control environmentControl environment is a core component of internal control. It consists of standards andstructure that facilitates internal control in an organization. It operates under the principles ofintegrity and ethical values, independence of the board of directors, commitment of the staff andtheir competence, accountability and developing organization structure. As according to Doyleand McVay (2007),a good control environment ensure that the importance of internal control isunderstood by everyone in an organization and all act accordingly on it (p.200). in internalcontrol there are two control activities that ensures efficient and effective production and storageof information. The control activities include; general control that control the access of the storeddata of the system and the application controls deals with software applications and transaction.
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