Question

List the principles of internal control.

Answer 1

Answer:

Internal Control: Internal controls refer to the process designed, implemented & maintained by those charged with governance, management & other personnel to provide reasonable assurance about the achievement of entity objectives with regard to the reliability of financial reporting, effectiveness & efficiency of operation & compliance with the applicable laws and regulations.

Principles of internal control are as follows:

• Segregation of duties: Transaction p[rocessing are allocated to different persons in such a manner that no one person can carry through the completion of a transaction from start to finish or the work of one person is made complementary to the work of another person. The purpose is to minimize the occurrence of fraud & error and to detect them on a timely basis.
• Authorization of transactions: Delegation of authority to different levels and to particular persons are required to establish by the management for controlling the execution of transaction in accordance with prescribed conditions.
• Adequacy of records & documents: Accounting control should ensure that transactions are executed in accordance with management general or specific authorization. Transaction & events are promptly recorded at the correct amount & transactions should be classified in the appropriate accounts and in the appropriate period to which it relates.
• Accountability & safeguarding of assets: The process of accountability of assets commences from the acquisition of assets its use & final disposal. Safeguarding of assets requires appropriate maintenance of records, their periodic reconciliation with the related assets.
• Independent checks: Independent verification of the control system, designed & implemented by the management, involves periodic or regulars review by the independent persons to ascertain whether the control procedure is operating effectively or not.