Question

What is an internal control system? Describe the elements of an internal control system. What are accounting and administrative controls?

Answer 1

Answer(1): Internal control- It is a process of assuring to achieve organizational's objectives by doing business under rules, regulations and laws. Companies achieve their target in line with compliance. Internal control is a system that is free from fraud and misstatement, it increases operational efficiency of company. Internal control controls risk for organization.

Elements of an internal control system- Are as following:

Control environment- Ethics, values, principles, control activities, organizational structure etc. fall under control environment.

Risk assessment- It is to identify, evaluate and mitigate the risk for business. There should be proper and quick steps to prevent from risk in the business.

Control activities- Policies and procedures, security, setting p perception, segregating the duties fall under this element.

Information and communication- Quality of information and effective communication are the need of an organization for better internal control.

Monitoring- Whatever has been done till now, it should be monitored thoroughly. There should be separate evaluation.

Answer(2): Accounting control- It is the procedure that make sure the true and fair picture of financial statements. Company should follow Accounting principles and standards so that correct financial statements can be prepared and there may be no chance of misstatement.

Administrative controls- These are the procedures to control the risks in the business environment so that there may be no hazard. It assures safety and security of employees and assets in the company. It includes:

• Safe work practice
• Scheduling
• Training
• Prevention health measures.