Ans:- The internal control weakness
Definition: Internal Control can be defined as
a system designed, introduced and maintained by the company’s
management and top-level executives, to provide a substantial
degree of assurance in achieving business objective, while
complying with the policies and laws, safeguarding the assets,
maintaining efficiency and effectiveness in regular operations and
reliability of financial statements.
Objectives of Internal Control System
- To ensure that the business transactions take place as
per the general and specific authorisation of the
management.
- To make sure that there is a sequential and systematic
recording of every transaction, with the accurate amount
in their respective account and in the accounting period in which
they take place. It confirms that the financial statement fulfils
the relevant statutory requirements.
- To provide security to the company’s assets from
unauthorised use. For this purpose, physical security
systems are used to provide protection such as security guards,
anti-theft devices, surveillance cameras, etc.
- To compare the assets in the record with that of the
existing ones at regular intervals and report to the those
charged with governance (TCWG), in case any difference is
found.
- To evaluate the system of accounting for complete
authorisation of the transactions.
- To review the working of the organization and the
loopholes in the operations and take necessary steps for
its correction.
- To ensure there is the optimum utilization of the
firm’s resources, i.e. men, material, machine and
money.
- To find out whether the financial statements are in
alignment with the accounting concepts and
principles.
An ideal internal control system of an organization is one that
ensures best possible utilization of the resources, and that too
for the intended use and helps to mitigate the risk involved in it
concerning the wastage of organization’s funds and other
resources.
Types of Internal Control System
- Preventive Controls: These controls are
introduced in the firm to stop errors and irregularities from
taking place.
- Detective Controls: These controls are
implemented to reveal errors and irregularities, once they take
place.
- Corrective Controls: These controls are
designed to take corrective action for removing errors and
irregularities after they are detected.
The type of internal control system implemented in the
organization will be based on the company’s nature and
requirements.
Internal Control System is important for every organization, for
efficient management as well as it also assist in the company’s
audit. It includes all the processes and methods to help the
company in reaching its ultimate objective.