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Internal Controls in Organizations PDF

   

Added on  2021-06-17

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Running head: INTERNAL CONTROLS IN ORGANIZATIONSInternal Controls in OrganizationsName of the StudentName of the UniversityAuthor’s Note
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1INTERNAL CONTROLS IN ORGANIZATIONSIntroductionIn the era of 21st century, there are many factors contributing towards the success of thebusiness organization and Internal Control is considered as one of them. Internal control can bedescribed as a process that the board of directors, management and other employees design sothat reasonable assurance can be provided in some of the major areas such as effectiveness andefficiency of business operations, reliability of financial reporting and compliance with therequired laws and regulations (Badara and Saidin 2013. Credulity is considered as a majorpriority of the businesses and the presence of internal control makes the companies credible forachieving their organizational objectives and goals. At the same time, it needs to be mentionedthat the effective implementation of internal control provides the organizations with thenecessary protection from financial, strategic and reputations risks (Aziz et al. 2015). In theterms of auditing and accounting, internal control provides the assurance that the business basicsof the entities remain operationally efficient and effective. The main aim of this essay is toanalyze and evaluate the importance of internal control in the business organizations. Components of Internal Control SystemIn order to discuss the importance of internal control, it is required to discuss about themajor components of an internal control system in the business organizations. It needs to bementioned that there are five interrelated components of internal control and they are discussedbelow:The first component is the Control Environment. Sometimes control environment isregarded as ‘tone at the top’ and it is influenced by different internal factors of organizations like
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2INTERNAL CONTROLS IN ORGANIZATIONSphilosophy of the management, operating style, ethical values, integrity and commitment tocompetence. The overall internal control of the companies will work effectively in case thesefoundations are strong and the control environment is positive (Chen et al. 2014).Risk Assessment is considered as the second component of internal control that refers tothe identification, analysis and management of the risks related to the achievement oforganizational goals and objectives. Different types of risks have adverse effects on theoperations of the organizations. After the identification of the risks, management is required totake into consideration the impact of them and the likelihood to their occurrences (Fourie andAckermann 2013).The next component is considered as Control Activities. Internal control activities arereferred to specific tools like techniques, policies, procedures and different mechanisms helpingthe management in carrying out their directives. For this reason, control activities helps themanagement of the companies in the identification, prevention and reduction of the businessrisks that are considered as the major barriers in the achievement of the organizationalobjectives. Some of the major examples of control activities are approvals, authorizations,reconciliations, verification, documentation and others (Feng et al. 2014).Communication and Information is the fourth component of internal control; and thebusiness organizations must have relevant, valid, reliable and timely communication in order tocontrol the business operations. For this reason, the organizational managers must obtain thenecessary information in order to make business decisions, risk determination and thecommunication of policies and other required information within the organizations (Fourie andAckermann 2013).
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