Internal Control

What is Internal Control in Accounting?

Internal Control in accounting refers to the process in which the company adopts different rules, policies or the procedure for ensuring correctness of the information about the accounting and finance, safeguarding the different assets of the business, promoting accountability in the business and preventing the occurrence of the frauds in the company.

Example of Internal Control in Accounting

Internal Control

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Source: Internal Control (wallstreetmojo.com)

Advantages

The different advantages are as follows:

Limitations

  • As there is the involvement of the human in placing the internal control in the company, human error may happen in doing so. Many times the person who is in charge of implementing the control does not get the proper understanding of the control and its purpose, or he forgets to follow the appropriate step, which might not fulfill the purpose of the whole of control. In these situations, it becomes hard to put in place the proper internal control system in the organization.
  • Many times system control is not appropriately designed, where there is insufficient segregation of the duties, and people are allowed to interfere in the work of others. In those cases, it negatively affects the performance of the staff.
  • Many times company has to incur considerable cost for the implementation of the proper internal control in the organization, which becomes problematic for the concerns, especially those who are having a small scale business.

Important Points

Some essential points are as follows:

  • A company can adopt different rules, policies, or procedures as their process. This process that will ensure- the correctness in the accounting and finance, safeguard assets of the business, promote accountability in the business, and preventing the occurrence of the frauds in the company is known as the “internal control.”
  • With the help of such controls, work can be regulated properly and scientifically through the way of division of work among employees. These controls will lead to the efficient and effective working of staff and put the moral pressure on them.
  • There is a different limitation, which includes the chances of human error as there is the involvement of the human in placing the internal control in the company, insufficient designing, massive cost involvement, etc.

Conclusion

Thus, in case of the internal control, the company adopts different rules, policies or the procedure with the motive of safeguarding the various assets of the organization, promoting the operational efficiency, checking of the accounting data, and following the different policies and procedures as prescribed by the management managerial of the company.

This has been a guide to what is internal control and its definition. Here we discuss an example of internal control in accounting along with advantages and limitations. You can learn more about accounting from the following articles –

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