Question

Provide a detail explanation of the role of organisational policy and procedure known as internal control in relation to reconciling and monitoring financial accounts? (200 words)

Answer 1

Internal control refers to the various methods adopted for the control of production and distribution and the whole system of the enterprise. In other words, the internal control system—the whole system of controls, financial or otherwise established by the management in order to carry on the business of the enterprise in an orderly and efficient manner—ensures adherence to management policies, safeguards the assets and secures as far as possible the completeness and accuracy of the records.

The special report on internal control of the American Institute of the Certified Public Accountants and its statements on auditing procedures contain the following definition of internal control. ‘Internal control comprises the plan of organisation and all the coordinated methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operations efficiency and encourage employees to prescribed managerial policies'.

In the opinion of W.W. Bigg, ‘Internal control is best regarded as indicating the whole system of controls, financial or otherwise, established by the management in the conduct of a business including internal check, internal audit and other forms of control’.

So, on the basis of above definitions, it may be stated that a system of internal control provides a measure for the management to obtain information, protection and control which are quite important for the successful working of a business organization.

In reconciling and monitoring financial accounts and records, the following procedures must be ensured by the company:

An appropriate and integrated system of accounts and records are maintained by the company.

1. Financial supervision and control by management, including budgetary control, management accounting reports and interim accounts.
2. The internal documents are reconciled with external documents also. Like the accounts payable is reconciled with the supplier invoice.
3. The financial accounts and reports are prepared and maintained on a timely basis.
4. The month end reporting are done with accuracy to match all the records.
5. A multi level check system is implemented to monitor the financial records.