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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What are the five components of internal control?

To determine

Introduction:

Internal Control System:

It basically help employees in controlling the business activities, management puts in place policies and procedures that collectively helps in achieving the goals and objectives of the organization.

The Five Components of Internal Control System.

Explanation
  1. To Control Environment - It helps in to control environment in order to keep in mind the integrity and ethical values of the organization. It included the following things −
    • a. To keep in mind the philosophy and operating cycle of the organization

      b. To take care of the personnel policies and procedures of the organization

      c. To maintain an integrity, attitude, awareness and actions of every people in order to keep in mind the importance of internal control system of the organization.

    The most important feature of the control environment is to recognize the goals and objectives of everyone. An individual employee’s goals may differ from the goals of other individuals and the goals of the organization.

  2. Assessing Risk − It helps in to identifying, analyzing and managing strategic risks and business process risks. It’s also known as Enterprise Risk Management (ERM).
    • Strategic Risks − These risks are possible threats to the organization, it may or may not occur and are related with the internal and external threats like competitors, customers, substitute products and services, suppliers and threat of new suppliers or macro factors such as political, economic, social and technological (also known as PEST factors).
    • Business Process Risks −These risks are related with the numeral threats of the organization like how the company utilizes its resources in order to meet its goals and objectives and many more factors like material acquisition, production, logistics and distribution, branding and marketing and human resources. The nature and importance of the business process may vary from company to company based on their specific goals and objectives.
  3. To Control Activities − These are the policies and procedures build to help the organization in order to meet its goals and objectives...

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