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The Importance Of A Control System Within The Business.

1108 words - 4 pages

Internal controls are methods or procedures adopted in a business to:-Assist in achieving the businesses' objectives- Ensure financial information is correct and reliable- Ensure cooperation with all operational and financial requirements- Protect its AssetsThey are essentially checks and balances within a business. It's objective is to reduce errors, limit financial losses and prevent fraud. They also segregate duties within the company and limit one persons control over an entire area. For example-never have one person writing, receiving and reconciling your business accounts.As the owner of Millennium Land Developers, it is your responsibility to ensure that the business has a good internal control system. As they flow through the entire business to:- Help align objectives of the business:To make sure everything is covered in the reporting procedures and the activities currently undertaken by the business are in line with the objectives of the business.- Safeguard assets:Makes sure the physical and monetary assets of the business are safe from theft, errors and fraud.- Prevent and detect fraud and error:Enabling the internal control system quickly identifies fraud and errors when they occur.- Allow action to be taken against undesirable performance:A method of dealing with dishonesty or fraud if detected- Reduce exposure to risks:Minimising the probability of any unexpected events happening- Ensuring proper financial reporting:Maintains complete and accurate financial reporting requirements by management and legislation and minimising lost time by fixing mistakes and ensuring resources are efficient and mistake free when allocated- Completeness:That all the required information are included in the business reports. These include transactions and records.- Accuracy:Making sure that the right amounts are recorded into the correct accounts- Authorisation:Makes sure the correct level of authority deals with approvals, computer access and payments etc.- Validity:That the documents for the activity performed have incurred the liability- Existence:Makes sure the existence of an asset or liability has been received. Whether or not a purchase has been received for goods or service.- Error handling:Makes sure that any errors in the system have been identified and processed- Segregation of duties:Maintains certain duties are performed by different positions and kept separate.- Presentation and disclosure:Ensures the financial reports are in line with regulations and principles.A good system of internal controls will help the business in numerous ways. These include:- Error Reduction:With a good system of internal controls, it will ensure that mistakes will be minimal and this will save time and money for the business.- Protection for staff:With an internal control system, staff will have the protection of the system to back themselves up if in any way there is a dispute with an action. The employee can say that he/she acted in the way noted by the...

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