What are the objectives of Internal Control?

What are the objectives of Internal Control?

Objectives of internal control:

Internal control refers to all the methods and procedures implemented within the organization to safeguard assets, enhance the reliability of accounting records, boost the efficiency of operations, and ensure compliance with laws and regulations. There are three primary objectives of internal control that allow management to focus on different aspects of internal control.

  1. Safeguard assets
  2. Accurate information
  3. Compliance with laws and regulations


1) Safeguard assets

An act of fraud, theft, misuse, or misplacement of assets is a serious concern for the management. Among all, fraud is the most serious breach of internal control. 

Examples of fraud include:

  • A bookkeeper in a small company diverted $120,000 of bill payments to a personal bank account.
  • A shipment of $112,000 of merchandise by shipping clerk to himself.
  • Embezzlement of $2 million from a Bank by a computer operator.

Internal control protects the resources or assets of the organization by effective implementation of the organization’s operations.

Examples of how to safeguard assets:

  • Insurance 
  • Audit and inventory checks
  • Protection of electronic data
  • Legal protection of intellectual property


2) Accurate information (Reporting) 

Accurate and reliable information is necessary for successful business operations. Internal control makes sure that the data supplied within the organization is much reliable, accurate, and well documented.

The internal control system communicates all significant information both down and up the organization, and communicate information to appropriate external parties as well.

Internal control also uses external data to assess the events that impact decision making and external reporting. For instance, management uses information from the Financial Accounting Standards Board (FASB) to determine the impact of possible changes in reporting standards.


3) Compliance with laws and regulations

It is one of the objectives of internal control to ensure that a company is in compliance with all applicable laws, regulations, and financial reporting standards.

Examples of such standards and laws include environmental regulations, contract terms, labor laws, safety regulations, and generally accepted accounting principles (GAAP) or International financial reporting standards (IFRS).



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