Internal Controls over Assets
Internal controls are processes that are designed to ensure that an organization engages in reliable financial reporting, complies with the applicable laws, and carries out efficient and effective operations. Safeguarding the assets of an organization against unauthorized use and theft is part of internal control. The management style, as well as the expectations of senior managers, especially their control policies, has a considerable impact on the control environment. Internal controls ensure that all procedures and policies are adhered to. It includes the independent oversight that’s provided by the board of directors, audit committee, ethical values, management integrity, and organizational philosophy.
Proper internal controls reduce the risk of loss of assets and ensure that financial statements are accurate. When internal controls are effective, all stakeholders have reasonable assurance that their plans are achieving the intended objectives of financial reporting. On the other hand, ineffective internal controls cannot provide such assurance. Internal controls protect the assets of an organization in two major ways (Turner & Weickgenannt, 2020). The first way is by ensuring that all opportunities for errors are minimized. Secondly, internal controls ensure that all minor errors are discovered before they become big problems.
There are various controls that can be put in place to protect the assets of an organization, and ensure the accuracy of financial statements. The first control is the setting up of procedures and policies that are designed and implemented to provide assurance that access to the record-keeping software, hardware, passwords and voice response system is only granted to authorized personnel (Hamid, 2019). The second form of internal control is clear and open communication. The management should clearly communicate responsibilities, expectations, and other matters that are necessary for an organization to operate efficiently. The accounting department should provide a clear understanding of all the financial reporting controls, how they work, and the responsibilities of all the staff that deal with these controls.
Finally, an organization should carry out reconciliations. This is done by reconciliating different sets of data to another, checking where there are differences, and taking corrective actions where need be (Turner & Weickgenannt, 2020). Reconciliation helps to ensure completeness and accuracy of all financial transactions. A good example or reconciliation controls is the monthly reconciliation of financial reports or bank reconciliations.