Explain how companies can benefit from assessing their internal control procedures.
How can internal control procedures be used to effectively safeguard a company's cash? Explain.
The system of internal control is designed to provide reasonable assurance to the audit committee, the shareholders, and the independent auditors that three basis objectives are being met:
1. Effectiveness and efficiency of operations
2. Reliability of financial reporting
3. Compliance with applicable laws and regulations
Your question focuses on reliability of financial reporting, but each objective is assessed in terms of the following five components. In light of recent failures, the five components are being expanded to 20, but we can work with these for your cash problem.
1. Control Environment
2. Risk Assessment
3. Control Activities
4. Information and Communication
Now, a sentence or two about each component as it relates to safeguarding cash.
The control environment is all about the total system of ...
The solution first lists the components and objectives of a system of internal control. Next those components are assessed in specific terms of safeguarding cash. It took 506 words to get all that written down.