What is Internal Control, Its Elements & Importance for Audit?

Internal control is defined as a process conducted by the board of directors and relevant workforces to find our rational reassurance related to the achievement of objectives in the following categories;

Efficiency and efficiency in the operations
Consistency of the financial and operational information
Safeguard resources of the business
Compliance with the laws and rules.
Prevention of the mistakes and irregularities

Purpose of the Internal Control

The following purposes are achieved with the practice of internal control.

To protect the assets that are used for the activities of the company
Obtain accurate information
The creation of internal rules and procedures
Make employees respect the internal and external laws and rules.

The Elements of Internal Control

In order for the management to achieve the internal control objectives by the business, it is necessary to apply the following elements;

Environment Control

It is given by the values, philosophy, ethical conduct and the integrity within as well as outside the organization. It is necessary that the company’s personnel, customers and third parties related to the company know them and identify with them inn a clear manner.

Risk Evaluation

It consists of identifying the factors that could cause the business to meet its proposed objectives. When the risks are identified, they must be managed, analyzed and controlled.

Control Procedures

They are issued by the management and consist of the policies and procedures that make sure the compliance with the objectives of the business and are executed by the entire organization, in addition to provide the necessary measures to address the risks.

Supervision

Through continuous monitoring carried out by the administration, it is evaluated whether the employees perform their tasks in the adequate manner or if the changes are necessary. The supervision includes internal supervision of Internal Audit by the people of the company and the external evaluation for the External Auditor performed by the external entities of the company.

Information and Communication Systems

They are used to identify, process and communicate the information to the staff in a way that allows each employee to know and assume their responsibilities. The top management must convey clear messages about the activities of the business and the management and control that are performed in each of them. In the similar way, the information from external sources can be obtained to improve the controls and report any anomalies to the administration.