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

  • Sanctions

    • As opposed to forms of internal control, like norms and values, sociologists consider sanctions a form of external control.
    • Internal controls are a form of social control that we impose on ourselves.
    • Sanctions are mechanisms of social control.
    • As opposed to forms of internal control, like cultural norms and values, sociologists consider sanctions a form of external control.
    • Informal sanctions can check deviant behavior of individuals or groups, either through internalization, or through disincentivizing the deviant behavior.

  • Internal and External

    • The control process can be hindered by internal and external constraints that require contingency thinking.
    • At the organizational level, internal control objectives concern the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations.
    • With this in mind, we can summarize internal constraints as any one or any combination of the following:
    • This flowchart illustrates how an internal control system can be integrated into the production process: mid-level managers of one department can monitor and QA other departments' output.
    • Examine the external and internal control constraints that may limit efficiency in the control process

  • 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

  • Bandura's and Rotter's Social-Cognitive Theories of Personality

    • A person with an internal locus of control believes that their rewards in life are guided by their own decisions and efforts.
    • An internal locus of control has been shown to develop along with self-regulatory abilities.
    • People with an internal locus of control tend to internalize both failures and successes.
    • Many factors have been associated with an internal locus of control.
    • Rotter's theory of locus of control places an individual on a spectrum between internal and external.

  • Social Control Theory

    • Social control theory describes internal means of social control.
    • An internal understanding of means of control became articulated in sociological theory in the mid-twentieth century.
    • The notion of an individual being shaped by his ties to his community, of having a "stake in conformity," laid the groundwork for the idea of internalized norms that act as a method of social control.
    • Nye focused on the family unit as a source of control and specified three types of control: (1) direct control, or the use of punishments and rewards to incentivize particular behaviors; (2) indirect control, or the affectionate identification with individuals who adhere to social norms; and (3) internal control, or the manipulation of an individual's conscience or sense of guilt to encourage conformity.
    • However, youth may be constrained when free from direct control by their anticipation of parental disapproval (indirect control), or through the development of a conscience, an internal constraint on behavior.

  • Informal Social Control

    • Sociologists identify two basic forms of social control - informal control and formal control.
    • Informal control typically involves an individual internalizing certain norms and values.
    • Individuals internalize the values of their society, whether conscious or not of this indoctrination.
    • When social values become internalized, they become an aspect of an individual's personality.
    • Though he eventually jumps, his behaviour is controlled by shame, not by his internal desire to jump.

  • Oligotrophs

    • The control circuitry monitors the environment and the internal state of the cell, including the cell topology, as it orchestrates activation of cell cycle subsystems and Caulobacter crescentus asymmetric cell division.
    • The proteins of the Caulobacter cell cycle control system and its internal organization are co-conserved across many alphaproteobacteria species, but there are great differences in the regulatory apparatus' functionality and peripheral connectivity to other cellular subsystems from species to species.
    • The Caulobacter cell cycle control system has been exquisitely optimized by evolutionary selection as a total system for robust operation in the face of internal stochastic noise and environmental uncertainty.
    • The bacterial cell's control system has a hierarchical organization.
    • The genetic network logic responds to signals received from the environment and from internal cell status sensors to adapt the cell to current conditions.

  • The stages of going international

    • Earlier in our discussion on definitions, we identified several terms that relate to how committed a firm is to being international.
    • Firms typically approach involvement in international marketing rather cautiously, and there appears to exist an underlying lifecycle that has a series of critical success factors that change as a firm moves through each stage.
    • For small-and medium-sized firms in particular, exporting remains the most promising alternative to a full-blooded international marketing effort, since it appears to offer a degree of control over risk, cost, and resource commitment.