Internal control is a very important concept for companies, for their management, and which aims to allow to better control all the processes implemented by the company to achieve its objectives.
The larger a company is, the more important the internal control systems within it are.
Definition of internal control
Internal control can be defined as all the securities contributing to the control of the company. Its objective is twofold:
ensure the protection, the safeguarding of assets and the quality of information;
ensure compliance with laws and regulations;
and also to ensure the application of management instructions in order to improve the company’s performance.
Internal control is materialized by the implementation of methods, rules and procedures within the company.
Internal control is very important in terms of accounting and its probative value, it must ensure that:
all facts must be recorded and the accounting must be complete;
accounting complies with accounting rules and principles.
How does internal control look like?
Internal control is characterized by the existence within an entity of an organizational system with people responsible for its implementation. This system must provide for:
an organization with a clear definition of responsibilities that has adequate resources and skills and is based on appropriate procedures, information systems, tools and practices;
the internal dissemination of relevant, reliable information, knowledge of which allows everyone to exercise their responsibilities;
a system aimed at identifying and analyzing the main identifiable risks with regard to the company’s objectives and ensuring the existence of procedures for managing these risks;
control activities proportionate to the issues specific to each process and designed to reduce the risks likely to affect the achievement of the company’s objectives; Ongoing monitoring of the internal control system and a regular review of its operation.
Internal control stakeholders
One could easily believe that internal control is the business of company managers, but it is true: this system must concern all people in the company (managers and employees) to be effective.
Managers are responsible for defining, driving and monitoring the system best suited to the situation and activity of the company.
Employees must have the knowledge and information necessary to establish, operate and monitor the internal control system, in light of the objectives assigned to them.
Internal audit
In large companies, there is often a department responsible for evaluating the operation of internal control systems and proposing areas for improvement to management: this is the internal audit.
It should not be confused with the external audit, carried out by people outside the company and independent of it.