What are some major components of an internal control system? Are these components always necessary?
There are five components that are generally considered main parts of the internal control system:
(1) The control environment
(2) Assessment of risks
(3) Systems of Information & Communication
(4) Control activities
(1) The control environment basically sets the tone for the control environment. The actions and behaviors of management make up a big part of the control environment. What attitudes does management display with employees towards internal control? Are the internal controls very lax? Strong leadership and enforcement of proper internal control policies and procedures directly define the internal control environment. Each of these components is definitely necessary. If the components are not enforced, or are non-existent, employees will see this as their main advantage to commit activities that they shouldn't, and it also sets the tone for the company that regardless of what happens, it won't be properly enforced.
(2) The second major component of internal control requires that management properly assess the company's greatest risks. After a thorough risk assessment is completed, management can begin taking appropriate actions to mitigate as much risk as possible. By decreasing the amount of risk, it ...