Internal financial control

ACCA - F1   ACCOUNTANT  IN  BUSINESS

All tangible and intangible resources of an organisation carry reasonable value. These resources are utilized and processed in order to produce goods or services. This means, waste of resource costs money to organisation. However, there is no only one way to produce and deliver specific good or services. The product, process and resources mix is the key for generating value to organisation and its stakeholders. Finally, when a set of defined procedure and resources are identified organisations need to minimise waste tied into the process. Waste can take exist in different forms like negligence, mistake, idle time, fraud and errors. To control these evils organisation implement financial control systems.

Internal control vs internal check

“Internal check is best regarded as indicating checks on the day-to-day transactions which operate continuously as a part of the routine systems whereby work of one person is proved independently or is complementary to the work of another, the object being the prevention of or early detection of errors and frauds” – The council of the Institute of chartered accountants of England and Wales. It is a part of internal control system.

Internal control is routine and scheduled tasks or random surveillance conducted by individuals/machines. Internal control activities are represented by mnemonic ACCAMAPS. (Authorisation, Comparison, Computer control, Account reconciliation, Maintaining trial balance and control accounts, Arithmetic control, Physical control, Segregation of duties) Internal control system facilitates proper operation of business. It ensures legal compliance, reliable financial reporting and safeguard of assets against damage, loss and theft.

Organisation structure, power structure, culture and management style determine control environment. Control environment ensure that control procedure are properly followed. Control environment sets the tone of an organisation, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. Control environment factor include the integrity, ethical values and competency of the entity's people management's philosophy and operating style.

Internal Control