internal controls

(noun)

In accounting and auditing, internal control is defined as a process affected by an organization's structure, work and authority flows, people and management information systems, designed to help the organization accomplish specific goals or objectives [1]. It is a means by which an organization's resources are directed, monitored, and measured. It plays an important role in preventing and detecting fraud and protecting the organization's resources, both physical (e.g., machinery and property) and intangible (e.g., reputation or intellectual property such as trademarks).

Related Terms

Examples of internal controls in the following topics:

  • Cash Controls

    • Cash internal controls is a system used to promote accuracy, prevent theft, and ensure a business has enough cash to pay its debts.
    • Every business should have internal controls regarding its financial activities.
    • If designed well, internal controls can prevent theft and fraud.
    • While internal control should be designed for every aspect of a business's operation, the controls for cash are arguably among the most important.
    • Therefore, the internal controls associated with cash must be more stringent.

  • Managing to Prevent Fraud

    • To help prevent fraudulent activities, management must implement internal controls/structure and know what situations to look for.
    • Failure to implement adequate internal controls can result in financial statement fraud (purposely misstated financial statements) or embezzlement (theft).
    • To help prevent fraudulent activities, management must implement internal controls/structure, and know what situations to look for.
    • One of the main factors of an effective internal control system is segregation of duties.
    • Explain how a company can prevent fraud by establishing internal controls

  • Internal Controls

    • Inventory internal controls ensure that a company has sufficient resources to meet its customers' needs without having too much goods.
    • Internal controls over a company's inventory are meant to ensure that management has an accurate count of what materials and goods it has available for sale and to protect those goods from being spoiled, stolen or otherwise made unavailable for sale.
    • In short, inventory internal controls are meant to ensure that a company always has sufficient resources to produce and sell goods to meet its customers' needs without having oversupply.
    • Since a company's inventory is directly tied to the business's ability to generate profit, the internal controls must be comprehensive and require significant thought when being designed.
    • Explain how a company would use storage, inventory management systems and inventory counts to control inventory

  • Using a Bank for Control

    • A bank is a good cash control because it limits employees' access to company assets and provides documentation on withdrawals and deposits.
    • Using a bank is one of the best internal controls on a business's cash.
    • Internal controls are meant to ensure that a business's assets are protected, that its financial data is accurate, and to ensure efficiency .
    • Keeping money in a financial institution, such as Deutsche Bank, can provide a critical control over a business's cash.
    • Describe why a bank is one of the best internal controls a business can use

  • Reconciling Cash Accounts and Bank Statements

    • A bank reconciliation is an internal control that ensures that the cash in its accounts equals what it has recorded in its books.
    • Describe how a company uses a bank reconciliation as an internal control

  • What Is Cash?

    • Since cash can also easily be stolen or mishandled, it is important to maintain a strict series of internal controls to ensure that these assets are not lost.

  • Current Issues in Reporting and Disclosure

    • These included more transparency in financial reporting and stronger internal controls to prevent and identify fraud and auditor independence.

  • The Role of Accounting in the Business

    • The role of accounting in business is to help internal and external stakeholders make better business decisions by providing them with financial information.

  • Defining Accounting

    • The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in selecting the information that is relevant to the user.
    • This development resulted in a split of accounting systems for internal (i.e., management accounting) and external (i.e., financial accounting) purposes, and subsequently also in accounting and disclosure regulations, following a growing need for independent attestation of external accounts by auditors.

  • Disadvantages of LIFO

    • LIFO is facing pressures from international standards boards that may result in its possible complete elimination.
    • On June, 18, 2008, the SEC issued a press release stating that the world’s securities regulators are uniting to increase their oversight of international accounting standards.