Impact of Implementation of Internal Controls in an Organization

Running head: AUDITING THEORY AND PRACTICE
Auditing Theory and Practice
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1AUDITING THEORY AND PRACTICE
Table of Contents
Introduction................................................................................................................................2
Literature Review.......................................................................................................................2
Internal Control – the concept and its components................................................................2
Advantages of implementation of internal control.................................................................3
Internal controls – an effective tool in the hands of the external auditor...............................5
Limitations of Internal Control..............................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8

2AUDITING THEORY AND PRACTICE
Introduction
The issue that has been discussed in this particular study is the impact of
implementation of internal controls in an organization. Internal control fundamentally refer to
those set of controls that have been implemented within an organization in order to aid the
organization in the achievement of its objectives in terms of effectiveness and efficiency in
relation to the operations of business. The quality and the genuineness of the financial
reporting done by the organization are checked by the implemented internal controls as to
whether they comply with the laid down policies and regulations. To be precise, the controls
established within an organization for the purpose of mitigating the assumed risks fall under
the purview of internal controls (DeFond & Lennox, 2017).
Literature Review
Internal Control – the concept and its components
The set of controls that the management of an organization or its internal auditor
implements within an organization in order to make its operational activities efficient and to
improve the quality of the internal proceedings of day today business. A set of internal
control essentially act as a catalyst and influence the good practices or policies that are
already implemented within an organization. An example of a potential internal control is
segregation of duties. Segregation of duties refer to the division of tasks among different
employees. For instance, in a bank, a single employee is responsible for the task of collecting
cash from the customers, while another is responsible for, recording these transactions in the
respective books. Thus, here arises the utility of the internal controls as the division of task
mitigates the occurrence of error or fraud. The other principles of internal control are the
maintenance of records, execution of independent reviews that are scheduled to occur in