Internal Controls in Accounting

There are many statutory compliance that have to be fulfilled by companies worldwide. Accounting standards and controls are some of the essential compliance that not only help the companies manage their finances well, but also help them to keep track of liabilities, duties and taxes. The laws regarding internal controls in public corporations and companies are especially stringent due to the fact that public money and the common man's interest is to be safeguarded with the help of such controls and compliance.

Need of Internal Controls

Internal controls in accounting is a statutory compliance which are subject to an annual audit conducted by authorized and certified chartered accountants. The following is a small list of factors that explains the need and audit of such controls.

• It is extremely essential for any company to keep track of all accounting records and financial statements that are transacted and authenticated by the company in one financial year. This kind of control ensures that the public finances are not misused.
• Internal controls are also required to ensure timely payment of liabilities and taxes. These controls are required to uphold the reputation and credit rating of the company.
• Internal controls are needed to reduce frauds and criminal activities in the corporate world.
• The government, and agencies of the government, can demand financial records of the company, without any notice. These controls, once implemented, help the accounting and finance department of the company to produce financial records in such a short period.
• Such internal controls are also required in order to increase the efficiency and effectiveness of financial planning and management.

Elements of Internal Controls

There are several elements or policies that are implemented by companies in order to ensure effective internal control:

• Segregation of Duties: There are several functions that are always going on in the accounts department of a company, which have to be monitored with the help of internal controls. Segregation of duties is an excellent policy where two different people handle the accounts and physical operation of assets. This policy also involves a series of cross checks and tallies. The double entry system is a very crucial instrument for such a process.
• Transactional Authorization: All the transactions are authorized and definition of pricing is also implemented. It means that, during sale and purchase, employees need to follow a particular upper and lower limit policy, regarding prices.
• Documentation and Records: There are several different documentation and records that are stored in the company's computer systems with the help of accounting software. These systems basically ensure a simple functionality, easier cross checks, and reliable audits.
• Independent Checks: Internal or external auditors of the company can conduct audits and surprise checks within the organization, in order to ensure that the internal controls are effectively working.

Many directors, owners and managers of companies make public statements regarding the follow-up of internal controls. Public statements also carry the control checklist, that is used by the employees and auditors. It must be noted that internal controls have become a statutory compliance, and directives are issued by the government from time to time for their implementation.