Internal Control System in Accounting
Internal Control System in Accounting means involvement of the methods and a procedure which is work for an entity to safeguard its assets, develop the consistency of the record of transactions in accounting system, guide and the operational activities ,ensure that the business activities are regulated with the business laws and regulations, and prevent abuses of systems.
For example, a business provide transport service and for directing the service the business has a team of employees ,and the transports are under the team of employees. Now the business has to control and take care of the team as well the transports to avoid any unusual circumstances. The business should be assured that the transports are using for business purpose only and the employees’ are dong their job efficiently. For dong these, business will take the help of internal control which will control the whole operational activities of its transport service and will work as safeguard for the transports.
Elements of Internal Control System:
Management achieves the objectives of internal control by designing and applying five elements of internal control. Internal control systems have five basic elements which will generate the internal control to work effectively.
- 1. The control environment
- 2. Risk assessment
- 3. Control procedures
- 4. Monitoring
- 5. Information and communication
- A control environment: the top management level always is very conscious about the reliability of organization principles and the biggest responsibility of top management level is to ensure the ethics and honesty in the organization principle and the prevention of any immoral activity in the business. This element is often considered as the “tone at the top.”
- Risk assessment: there are may be some risk factors which can be prove as threat for the business. An entity must recognize and evaluate the various factors that create risk for the business as well find out the ways to control these risks factors in order to avoid the threat.
- Control activities. The frauds are really a harmful panic for any organization. The management must propose policies and measures to deal with those risks which are usually experienced by the company, that they can reduce the incidence of fraud.
- Information and communication. The internal control system must translate and communicate all relevant information to the interested users which can be beneficiary or harmful for the organization. The internal control should transfer the relevant information to the external users to have reliable information.
- Monitoring. It is the last element of internal control. For the business’s satisfaction about their information ant economic event internal control systems must be monitored periodically. There could be some lacking or deficiencies which need to be addressed properly by the top management and/or the board of directors. And internal control will work as a guideline for the top management