Exploring the Strengths and Weaknesses of Internal Control

This essay provides a comprehensive analysis of internal controls, examining both their strengths and weaknesses within organizations. It begins with a literature review defining internal control as a process for preventing fraud, inefficiency, and errors through compliance with laws and regulations. The discussion highlights the importance of managing costs effectively, conducting superior audits, implementing authorization procedures, and providing training to auditors. Internal controls are shown to strengthen internal operations, prevent fraud, and minimize errors. However, the essay also addresses weaknesses such as the broad application of internal control systems, ineffective information systems, time-consuming processes, and lack of knowledge, emphasizing the need for clear and transparent policies. The study concludes that while internal controls offer significant benefits, organizations must address their weaknesses to ensure effective implementation.

Strengths and weaknesses of Internal Controls

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Strengths and weaknesses of Internal Controls
Table of Contents
Literature Review:......................................................................................................................2
Introduction:...............................................................................................................................2
Background:...............................................................................................................................2
Discussion:.................................................................................................................................3
Strength of Internal Control:......................................................................................................3
Managing the Effectiveness of Cost:.....................................................................................4
Superior Studies and Audits:..................................................................................................4
Authorisation:.........................................................................................................................4
Training and Developing to Auditors:...................................................................................5
Strengthening the Internal Operation:....................................................................................5
Prevention of Frauds:.............................................................................................................6
Prevention of Error:................................................................................................................6
Weakness of Internal Control:...................................................................................................7
Broad Application of Internal Control System:.....................................................................7
Ineffective Information System:............................................................................................7
Time Consuming:...................................................................................................................8
Lack of Knowledge:...............................................................................................................8
Conclusion:................................................................................................................................8
References:...............................................................................................................................10

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Strengths and weaknesses of Internal Controls

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Strengths and weaknesses of Internal Controls
Literature Review:
Introduction:
Internal Control is defined as it is the process of preventing frauds, inefficiency,
inadequacy and the errors by the reliable, authentic, and compliances with laws and specific
regulation and policies. As per the view of Louwers, Ramsay, Sinason, Strawser &Thibodeau
(2015), Internal Control is one of the most important processes that is must need to be
adopted by each and every organisation. Internal Control helps to fix the errors of the internal
process of functions or operation. On the other hand, it also helps to achieve the objectives of
the company. It assists the personnel by doing the operation effectively and efficiently. In this
assignment, the learners have focused on the Internal Control and its strengths and weakness.
The clear and transparent policies should be taken so that it can maintain the appropriate
application of the internal control system policies. There are some advantages and also have
some disadvantages of Internal Control which need to be elaborated to get the knowledge of
the Internal Control. Therefore, in this chapter, various points are discussed for the further
research in the future.
Background:
In this recent era, Internal Control is well known by every senior manager in every
organisation and the term is understood by all of the employees working for the company.
But, the term is first introduced by the American Institute of Certified Public Accounts
(AICPA). The Securities and Exchange Commission (SEC) of United States used the
accounting and controls for the Security Exchange Act 1934. And this was further followed
in 1958 and 1972. As per the view of Feng, Li, McVay & Skaife (2014), the public
organisationcomes under the Act and it is said that it needs to implement adequately to

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Strengths and weaknesses of Internal Controls
control and protect the financial documents and information. After this, every organisation
had adopted the strategy of the Internal Control and so that it has given many facilities to the
company as well as the employees also. Due to its uncountable features and advantages, the
senior managers of the institution has taken the rules and legislation of Internal Control (IC)
and therefore, the managers were able to reach the goal of the company. IC assists the
enterprise by providing the authentic and transparent financial report to the shareholders and
stakeholders also. As because of this, the employers and employees are also able to fulfill the
objectives and due to the benefit of IC, it helps the operation process to do effectively and
efficiently.
Discussion:
The learners have discussed on what the Internal Control is and what the strengths and
weakness are. The many types of research have been done by the researchers and took the
final report after analysing the information and data from various sources. IC has much
strength, and therefore each and every organisation like small and big enterprises have taken
the Internal Control that is auditing and accounting. In this regard, Balsam, Jiang & Lu, (2014)
have depicted that as IC plays the vital role for the development and improvement of the
company so that there must be responsible and experienced Auditor who can control and
protect the internal process of the operation and functions. On the other hand, De Simone,
Ege (2014) argued that this cannot be done by the internal auditors but it could be done by the
external auditors so that the process could be done accurately and neutrally. Thereat, the
strengths and weakness of the Internal Control have discussed below:

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Strengths and weaknesses of Internal Controls
Strength of Internal Control:
There are so many strengths of Internal Controls. Therefore the organisation has
decided to take this laws and legislation for improving the overall process of the operation.
The researchers have elaborated the advantages, these are:
Managing the Effectiveness of Cost:
This is the first and most important requirement that is provided by the Internal
Control. It has been seen from the various researches that the cost is one of the major
valuable things. Thus every organisation has its operation and function costs. Therefore, to
manage the cost effectively, IC is needed. IC helps to manage the effectiveness of the cost. It
helps by evaluating the various process and methods. If the size of the team is big, then
Internal Control assists by reducing the cost. As per the view of Brown, Pott &Wömpener
(2014), the internal auditor team need to be hired from the other offices for inspecting the
overall operation and so that the performance could be developed through counselling and
coaching.
Superior Studies and Audits:
The audit and accounting is the important requirement for the company to fulfill the
objectives of the company. Superior audits and studiesare necessary for the entire department
for performing the roles and responsibilities effectively and efficiently. As mentioned by Lin,
Wang, Chiou & Huang. (2014), that the studies help the employees to do better performance
and therefore, they could be able to give the best effort to their own work. Sometimes, the
special training and coaching are given to the subordinates who are weak to do his job
decided by the managers.

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Strengths and weaknesses of Internal Controls
Authorisation:
The authorisation is one of the biggest requirements for the organisation which helps
to control the consistent structure. It has been seen after various analyses that when any
employee is signing off at any stage of the procedure, then the auditor could be able to track
the problems or the difficulties from where the problem is originated. The situation can be
elaborated by the example that is if a new product is manufactured, then the authorisation is
necessary for the process with the specific design. Moreover, the authorisation is also needed
for designing the process. Therefore, it could be said that approval is the most important thing
to manufacture the products and also to transfer it. In this regard, if the process is a failureto
produce the product then the responsibility can be traced back through the approval and can
be able to fix the problem.
Training and Developing to Auditors:
This is one of the strengths of the Internal Control. The organisation has the Internal
Audit department who updates the information and knowledge of the new process have been
launched in the market. In this competitive world, many companies are adopting the new and
creative information system so that the process could be done easily within a short time of
period with accurately and effectively. Therefore, the Internal Control is necessary for
providing the training and developing the auditors as per the information and knowledge.
Training helps the auditors to do better performance and therefore, they could be able to give
the best effort to their own work. Sometimes, the special training and coaching are given to
the subordinates who are weak to do his job decided by the senior managers. In this regard,
Chang, Yen, Chang & Jan (2014) have depicted that training and developing to the auditors are
the most important advantages as these persons will look after the entire process of the
company.

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Strengths and weaknesses of Internal Controls
Strengthening the Internal Operation:
Internal Control is as important as other responsibilities. IC helps to strengthen the
internal operation. It could be said after measuring the various researches that the internal
operation could be done in a better way if the audit report would be reported after each and
every process. As per the view of Vovchenko, Holina, Orobinskiy & Sichev (2017), if any
employee ignores to do the job and as because of this the production team is failing to
produce the products then the internal audit team can send the appraisal to the Senior
Manager or Director whether the chief manager can take the necessary action for the
employees by asking him what is the reason for such critical irregularities. Therefore, it could
be said that Internal Audit Team takes a vital role in strengthening the Internal Controls as
they are playing an important character in the organisation.
Prevention of Frauds:
Internal Audit Team is the mostimportant department for each and every company as
the business is dealt with huge money. In this digital world, lots of systems are introduced
and the companies are taking these systems to reduce the production time and labour cost.
But it has also been seen from the report that there are also the frauds available thatlook for
any chances to steal the money or the confidential information. In such cases, the Internal
Control takes a significant role to prevent this fraudulence. As per the view of Newton,
Persellin, Wang & Wilkins (2015), the organisation must need to sign the check to do the
business. On the other hand, Khlif & Samaha (2014) has depicted that the bank says to
submit the signatures of the people who are authorised persons and are doing the business so
that the bank could be able to verify the checks before issuing the money to someone.
Prevention of Error:
Internal Control also helps in preventing the error of any kind of process or
documents. The internal audit team of the enterprise inspects every procedures and method

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Strengths and weaknesses of Internal Controls
and even the documents that are availed by the specific employees from the different
departments in the company. In this regard, Pizzini, Lin & Ziegenfuss (2014) depicted that
due to the multiple of the works, the employee can make mistakes. But there is the Internal
Audit Team who can prevent the error of the work by inspecting and observing such
documents. The auditor helps to prohibit the mistakes what the employee has done.
Therefore, it could be said that the Inter Control or Audit is the most significant requirement
that the company must have. IC helps to the employees by interpreting what they could or
could not do when executing their duties that will assist to protect the company.
Weakness of Internal Control:
The researchers have mentioned the above-mentionedstrengths of the Internal
Control. Similarly, the IC has also some weakness, and due to this, the business owner must
address these. Inter Control helps by providing the specific policies to the business owners
whereas the internal audit helps by reviewing the internal operation and employee
performance. The weakness of the Internal Control is described as follows:
Broad Application of Internal Control System:
It has been seen from the mentioned advantages of IC that the application of the
Internal Control System is broad. As because of this, it could create the poor internal control
system. In this regard, Lenz & Hahn (2015) said that the business owners need to endeavour
to improve the system that will focus on the specific business issues. On the other hand,
Alzeban & Gwilliam (2014) argued that the company must need to adopt the Internal Control
System but, a few clear and transparent policies should be taken so that it can maintain the
appropriate application of the internal control system policies.

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Strengths and weaknesses of Internal Controls
Ineffective Information System:
It has been seen that many businesses continues during the lean resources and short
time is frequently expended for implementing the information system. To invest the time in
such a situation can enhance much efficiency in the long run. It is necessary to perform the
job systematically. Therefore, this would help the operation to keep the business competitive
and effective. There are lots of software systems available in the market which is also user-
friendly and could be able to reduce the processing time and these are not at all expensive. As
stated by Ege (2014), that due to the broad application system, the information system could
be ineffective but the internal control should observe for improving such systems.
Time Consuming:
As per the view of Abbott, Daugherty, Parker & Peter, (2016), the other weakness of the
Internal Control is that it is time-consuming as it has the broad application. To protect the
internal process, the time is required but one business owner has to face many challenges in
running the business. To control and protect the internal process, he needs to get around the
control system every time which is very time-consuming. So, it is one of the weaknesses of it
that creates the difficult management conditions for the entrepreneurs endeavouring to
manage the appropriate business practices. Thereat, the entrepreneur or the businessman
might also unable to give the time for reviewing Internal Control System.
Lack of Knowledge:
Internal Control is one of the most important process that is must need to be adopted
by each and every organisation. Internal Control helps to fix the errors of the internal process
of functions or operation. The business proprietor might unconscious on the best system
which is necessary to implement the process in the organisation. Therefore, this would create
a lack of knowledge on the system and henceforth difficulties could be aroused in protecting
the business as well as the information of the finance. In this regard, Chang et al. (2014) have

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Strengths and weaknesses of Internal Controls
said that the business owners have to avoid the weakness and so that they should consult with
the reputed accounting or audit firm.
Conclusion:
It could be said after measuring Internal Control is well known by every senior
manager in every organisation and the term is understood by all of the employees working for
the company. The strength and weakness of the Internal Control that the business owners
need to avoid the weakness so that they could be able to reach the goal of the organisation. IC
plays the vital role in the development and improvement of the company so that there must be
responsible and experienced Auditor who can control and protect the internal process of the
operation and functions.

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References:
Abbott, L. J., Daugherty, B., Parker, S., & Peters, G. F. (2016). Internal audit quality and
financial reporting quality: The joint importance of independence and
competence. Journal of Accounting Research, 54(1), 3-40.
Alzeban, A., &Gwilliam, D. (2014). Factors affecting the internal audit effectiveness: A
survey of the Saudi public sector. Journal of International Accounting, Auditing and
Taxation, 23(2), 74-86.
Balsam, S., Jiang, W., & Lu, B. (2014).Equity incentives and internal control
weaknesses. Contemporary Accounting Research, 31(1), 178-201.
Brown, N. C., Pott, C., &Wömpener, A. (2014). The effect of internal control and risk
management regulation on earnings quality: Evidence from Germany. Journal of
Accounting and Public Policy, 33(1), 1-31.
Chang, S. I., Yen, D. C., Chang, I. C., & Jan, D. (2014). Internal control framework for a
compliant ERP system. Information & Management, 51(2), 187-205.
De Simone, L., Ege, M. S., &Stomberg, B. (2014). Internal control quality: The role of
auditor-provided tax services. The Accounting Review, 90(4), 1469-1496.
Ege, M. S. (2014). Does internal audit function quality deter management misconduct?. The
Accounting Review, 90(2), 495-527.
Feng, M., Li, C., McVay, S. E., &Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
Khlif, H., &Samaha, K. (2014). Internal Control Quality, E gyptian Standards on Auditing
and External Audit Delays: Evidence from the E gyptian Stock
Exchange. International Journal of Auditing, 18(2), 139-154.
Lenz, R., & Hahn, U. (2015).A synthesis of empirical internal audit effectiveness literature
pointing to new research opportunities. Managerial Auditing Journal, 30(1), 5-33.