Discuss the meaning of internal control in the context of accounting
Discussion topic:
1. Discuss the meaning of “internal control” in the context of accounting. Then share five examples of internal control procedures designed to prevent fraud and accidental accounting errors.
Student Post
2. Internal control is a process for assuring of an organization’s objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.
3. Internal controls are the development of procedures and policies within a firm to ensure accounting records are accurate and true. These policies and procedures are set to help detect fraud and theft as well as promote the financial health of a company.
Proper authorization of transactions and activities is an example of an internal control. A company may set a general policy that is standard across the board. An example would be customer credit limit being standard. They may also set a specific authorization standards. An example of specific would be a sales manager must approve the sale of a vehicle being sold to a customer by a salesperson.
Separation of duties, in my opinion, is an important internal control from the top to the bottom. In accounting a person should not be responsible for gaining of an asset, the possession of the asset, as well as the bookkeeping of the asset. The asset could easily be compromised without detection.
Adequate documents and records keeping is an important internal control. Sufficient record keeping as well as separation of such documents can be beneficial to the company. For example the receiving department accepts the goods and keeps the inventory on such goods. The accounts payable also handles the invoice that verifies the amount of goods that was received/ charged for. These documents hitting different departments will help keep both departments honest.
Assets and records should be kept safe. The physical control and record keeping over assets help maintain proper accounting of such. For example the goods a company receives should be stored in a secure location with proper safeguards put in against theft. The records and products that are on technology or paper should be backed up and put into safe places to restore information if it is needed.
Independent checks on performance and activities are important in several ways. Employees that know they are going to be evaluated tend to stay within policy and procedures and not become careless. Independent checks indicate the person doing the evaluation has no connection to the financial process. They should not be involved in approvals, record keeping, accounts receivable or payable, or any part of the accounting process.
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