Internal control systems

[Acid]

Hi,

What exactly is meant by "Internal control systems" in the company , which is also what a auditor checks .


Thanks

Acid

[Prajna B]

Hi Acid,

Internal control systems can be described as a tool of internal control, (internal control) which is a process effected by an entity’s board of directors, management and other personnel regarding

1. Efficiency & effectiveness of operation
It assure the auditors that the financial statements reflect a reasonable correct picture of the financial status of the entity
2. Reliability of financial reporting
It is important to ensure that the financial statements are true & fair, which is possible only if control are in place to ensure the accuracy& completeness of accounting records.
3. Compliance with applicable laws & regulations
It is prerequisite of internal control, as early two points viz. Efficiency & effectiveness of operation & Reliability of financial reporting cannot be justifies without compliance with applicable laws & regulations.

This is what I tried to extract for u please refer to the examples on pages D1.3 & D1.4 of GTG Study Text of F8 which will help u in understanding the concept in deep.
Regards

Prajna B

[Acid]

Thankx. I didnt knew that you are as good as the F8 Author :)

[Prajna B]

Thanks for the appreciation Acid
But u should first thank F8 Author for explaining the topic so well in the GTG Study text and of course then to GTG for its continuous efforts for trying to fulfil expectations of the students……and then only if u are left with some thanks u are welcome any time ;)….any way thanks again.

Regards,

Prajna B

[Snehal K]

I agree with Prajna :)

[Acid]

Thanks for the appreciation Acid
But u should first thank F8 Author for explaining the topic so well in the GTG Study text and of course then to GTG for its continuous efforts for trying to fulfil expectations of the students……and then only if u are left with some thanks u are welcome any time ;)….any way thanks again.

Regards,

Prajna B

yes true . Thank you F8 Author , Thank you GTG , Thank you Prajna B and Thank you Snehal K for agreeing! :)

Thank you , Thank you , Thank you!

[Vanessa]

I would like to add a point to Prajya’s answer:


Organisations implement an internal control system:
 to manage risks
 efficiency & effectiveness of operation
 reliability of financial reporting
 Compliance with applicable laws & regulations


This is because there is a concrete link between risk management and internal control.
 Organisations normally begin their strategic planning by setting long term objectives for themselves.
 Organisation at this point should also identify and analyse any potential risks they may incur when attempting to achieve these objectives.
 To manage these risks organisation need to implement a set of specific internal controls. Thereby risk management becomes a part or subset of internal control.

[Prajna B]

Thanks Vanessa for supplementing my answer

And Acid I think u got ur answer……:)


Prajna B