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Business Talk

Business Talk

Author: Kevin Watson
Date: 2014-05-30
Internal control is a process for assuring the achievement of an organisation's objectives of operational effectiveness (the capability of producing the desired result) and efficiency (the extent to which time, effort and cost is used). It must also deliver reliable financial reporting and compliance with laws, regulations and internal policies.

Controls for each business will be different and must be designed based on the areas of risk that are identified in not achieving effectiveness, efficiency and compliance with laws. As an example, the risk of control failure needs to be assessed for each transaction stream (e.g. sales order to client payment collection) from inception to finalisation of the transaction.

There are 2 types of controls. Preventive controls include authorisation of transactions and automatic controls such as user software access controls and application controls (dropdown boxes, mandatory fields etc.). Whilst preventative controls attempt to stop things going wrong upfront, detective controls pick up control breaches after the fact via exception reports or random checking.

The directors report that you sign every year as part of your Annual Financial Statements states that you do all of the above so it is wise to document what you have done in case of any questions.