Question

Internal Controls are required to safeguard assets and support the accuracy of financial reporting.

Describe any TWO internal controls that might be implemented by an organization and explain how each might help safeguard business assets and/or support the accuracy of financial reporting.

Answer 1

MEANING OF INTERNAL CONTROL-

Internal control is a process or we can say procedure or a policy put in the management to safeguard assets, ensure accountability, increases the efficiency and stop the fraudulent activities and behaviour in the Organisation. In short, internal control is the process which main goal is to safeguard assets, increases efficency and stop fraudulent activities so that the financial statements and all the financial informations can give clear and reliabe information.

There are three types of internal control:-

1) Detective Internal control - Detective Internal control, function is to identify the error in the problem which already exist. One of the example is Auditing. Monthly reconciliation of petty cash accounts etc. So, it will help to decreases the fraud activities and show the correct financial statements.

2) PREVENTIVE INTERNAL CONTROL- This internal control function is to put the preventive steps to the errors like testing for clerical accuracy, backing up computer data etc. This Internal control help to prevent from the fraudulent activities and this activities help us to have physical control over assets.

3) CORRECTIVE INTERNAL CONTROL- THIS INTERNAL CONTROL, correct the errors that was found by the detective internal control.

This are the internal control that might be implemented by the Organisation.

=>The internal control which help the Organisation to safeguard business assets and support the accuracy of financial statements and reporting are as follows-

1) lock and protect the cash etc-  This internal control will definitely help the Organisation from the fraudulent activities and to safeguard aasets as if we lock and the protect the important stuff like the seal and the cash etc, the situation of fraud will not arise and it will also protect the assets.

2)EXAMINE SUPPORTING DOCUMENTS BEFORE SIGNING OR AUTHORISING - This INTERNAL Control will help the Organisation from the fraud activities as if the Organisation will examine all the documents before signing and authorising, so no one can harm the Organisation.

3) RECONCILE AND SCRUTINIZE YOUR BANK STATEMENT EVERY MONTH - This internal control will timely reconcile and check all the bank statement, so no need to worry about the correctiveness of the financial statements and it's financial reporting will also be reliable.