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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What is the purpose of an internal control system?

To determine

Introduction:

Internal Control System:

It’s mandatory to help employees and other partners to understand the goals and objectives of the organization. Basically it gives confidence to the customers and other parties that transactions are recorded in a right and timely manner.

The purpose of an Internal Control System.

Answer

They are designed to provide confidence regarding the achievement of the goals and objectives of the organization, such as it helps in to maintain the effectiveness and efficiency of the operational goals & objectives, provides accurate and authentic financial reports etc.

Explanation

Internal control system includes 4 basic purposes :

  • Assets Safeguarding: It provides confidence regarding detection and prevention of unauthorized acquisition or use of company’s assets in a wrong manner that could have a negative impact on the financial statements of the organization.
  • Financial Statement Reliability: It helps in to verify the financial information and maintain the trustworthiness of the financial statements of the organization.
  • Promoting Operational Effectiveness: It helps in to reducing the quantity of the unnecessary resources used to produce a given amount of output.
  • Encouraging acquiescence with management's directives :It helps in to maintain the effectiveness and efficiency of the operational goals and objectives of the organization through Monitoring. Monitoring is the process through which an organization can easily track the loopholes and actual problems and can work upon it in order to improve it as earlier as possible.

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