Internal control is the process designed and effected by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entity’s objectives concerning the reliability of financial reporting, effectiveness, and efficiency of operations and compliance with applicable laws and regulations.
It follows that internal control is designed and implemented to address identified business risks that threaten the achievement of any of these objectives.
Does internal control refer to the whole system of internal check, internal audit, and other forms of control, financial and otherwise, established by management to carry on the business of the company in an orderly manner that safeguards its records?
Spicer and Peglar, famous authorities on auditing literature, define the system of internal control as “Internal Controls is best regarded as the whole system of controls, financial and otherwise, established by the management in the conduct of business including internal check, internal audit and other forms of control.”
According to Committee of Sponsoring Organizations (COSO), “Internal control is the process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
· Reliability of financial reporting.
· Cprtfpliance with applicable laws and regulations.
· Effectiveness and efficiency of operations.
The reasons for internal controls can be seen in the example. They include:
Most of these reasons funnel back to the ultimate objective that the company continues to operate.
For example, if the company failed to comply with relevant laws and regulations, it might be forced to stop operations.