Question

importance, need and process of internal controls in detail.

Answer 1

Internal control establish safeguards to an organization s assets and minimise the opportunities of committing fraud and allowing errors to go undetected in an organization daily operation .

Internal control help to understand and mitigate risk:-. Internal controls are usually established based on a risk oriented approach to ensure that your organization focuses on high risk areas .

For e.g. when an employee accuses that the petty cash is locked ,you may immediately sense that stealing cash is a risk.

Internal control help to address financial statement assertion:- one of the purpose of internal control is to safeguard of the organization s assets and thus address financial statement assertions. A familiar example a performing a physical count of inventory used internally by all organization . Count inventory and tracked them in the accounting system to ensure the existence . Count cash receipts in retail sales before recording them to varify accuracy.

Internal control help to prevent and detect fraud :-segregation of duties is a fundamental element of internal control .Internal controls including proper sod help to prevent fraud . The principle of sod is to share responsibilities in a key process such that no one individual should performed two or three functions .

The human body is made up of numerous systems that performs specific tasks such as breathing air , circulating blood and digesting food each system serves its own particular purpose that contributes to the good of the body as a whole. Organisation operates in much the same manner . Numerous system are designed and set in place by management to carry out essential functions ,such as paying employees ,collecting cash from customers ,managing inventory levels ,and monitoring receivable balances . With each system individuals are charged with performing specific tasks often in a pre ordained sequence for example , a cash payment receive in the mail from a customers should be handled in a set way every time that it occurs to ensure that the money is properly recorded and protected from theft.