Internal Control Introduction
What is the main purpose of an internal control system?
To safeguard assets, ensure accurate financial reporting, and prevent fraud.
What does the "control environment" represent in an internal control system?
The organization’s culture, values, and leadership commitment to integrity.
How do internal controls protect company money and information?
By reducing risk of loss through structured procedures and limited access.
Why are internal control systems important for a business’s financial health?
They reduce operational failures, prevent fraud, and ensure accurate reporting.
What is the goal of the "risk assessment" component in internal control?
To identify and manage potential threats to achieving business objectives.
What role do internal controls play in preventing mistakes?
They catch errors early through checks and balances, minimizing misstatements.
What risks might a company face if it doesn’t have proper internal controls?
Theft, mismanagement of assets, unreliable financial reports, and reputational damage.
What are "control activities"? Give one example.
Rules and procedures to prevent errors and fraud, like requiring approvals or record checks.
How do internal controls help prevent fraud or theft in a business?
By limiting access, requiring approvals, and creating transparency in operations.
Define an internal control system in your own words.
A framework of policies and procedures designed to protect assets, ensure accuracy in accounting, and prevent fraud.
How does the "monitoring" component contribute to an effective internal control system?
It ensures that controls continue to work through regular review and prompt problem resolution.
Name three reasons why internal controls are important beyond fraud prevention.
Legal compliance, building trust with stakeholders, and improving operational efficiency.