Internal control

Internal control

It is the process of providing reasonable assurance on that the organization goals and objectives will be achieved.
The COSO definition of internal control:
"Internal control is a process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives".

The IIA's definition of internal control:
"Any action taken by the management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved."

It obvious that Internal control is affected by three main elements;
1- People;
2- Activities; and
3- Reasonable assurance.

1- People are the most important element in the control foundation. People may directly or indirectly affect the control process.

Direct affect such as managemnet and employee. However, management is responsible to establish the mechanisms and activities for an effective internal control, employees in the organization are responsible to ensure applying the management control. Indirect people included suppliers and customers.

2. Management activities of effective internal controls range from operational to financial activities it might included:

• safeguard the company resources;
• produce reliable financial reports;
• comply with laws and regulations;
• reduces the possibility of significant errors and irregularities and;
• assists in their timely detection when they do occur.
  

3. Reasonable assurance: Internal Control Provides Reasonable Assurance, Not Absolute Assurance. It is also a high of confidence by management that the objective of the company will be met.
Reasonable assurance is affected by:-
cost and benefits
Factors outside the control or influence of management can affect the entity’s ability to achieve all of its goals
Materiality