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What is the purpose of internal control? Why is it important?

What is the purpose of internal control? Why is internal control important? How can internal controls help or hinder a company's success? Who is responsible for establishing internal controls within the organization? What are some examples of effective internal controls? How can a company determine if the internal controls are effective? Do you believe your company's internal controls are effective? Where can you company improve?

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What is internal control?
"The auditor's definition of internal control is a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1) reliability of financial reporting, 2) compliance with applicable laws and regulations, 3( effectiveness and efficiency of operations, and 4) safeguarding of assets." COSO

What is the purpose of internal control?
The purposes are stated above as part of the definition, but on a more practical level, the purpose is to have a system of checks and balances that works within a company on a consistent basis which is used by every person and every system to promote accuracy, continuity and to minimize fraud, errors and omissions.

How can internal controls help or hinder a company's success?
Good internal controls systems can make the practical goals more easily attainable. Where there are internal control systems, there are also likely budgeting, cash flow planning and other forecasting techniques who can promote success. In the worst case, good systems can stop a problem before it becomes a disaster. A second important feature, particularly for a publicly traded company, is a reduction in audit fees because the systems in place work well to produce accurate and timely information. Another important feature is that if employees realize that good systems with checks and balances are ...

Solution Summary

The 944 word solution first gives a good definition of internal control and its purposes within a company. After each question is answered, there is a list of examples of common internal control procedures. Then there is a list of five examples of situations where internal controls were ignored or not thought to be important. These are real world situations.