What is Internal Control? Why is it important in Auditing?

Ø Definitions of Internal Control

Actually as long as you live, I believe you already get involved in Internal Control even only once, like for example your university have a policy ‘students have to do fingerprint 15 minutes before the class start’.

Why that’s policy called Internal Control? Because it can help company to manage their employees in order to achieve company’s objectives and goals. And also it helps manager to protect company’s assets because internal control needs human resources & technology systems. In other words, Internal control are methods or process that put in a place by a company to ensure the integrity of financial and accounting informations, to meet operational and profitability targets and also to detect fraud so that when the fraud occur the company can minimize it.

  

Ø Purposes of Internal Control

(1) to protect company's resources against waste, fraud, and inefficiency

(2) to ensure accuracy and reliability in accounting and operating data

(3) securing compliance with the policies of the organization         

(4) to evaluate the level of performance in all organizational units of the organization

Ø Why is it important in auditing process and how to do it

In my opinion, as an auditor Internal Control is important because from that the auditor can get general information about company’s performance whether it’s already good or not, whether the financial report already accurate and reliable or not, whether it’s already followed by laws and regulations or not. If the result of entity internal control is good then the auditor can justify the company’s work and their financial statements. However if the result of entity internal control is not good, then the auditor should work more harder to find an evidence the reason why the internal control is not good whether it can be because of fraud, out of regulations or law, etc.

But first before an auditor doing audit, they should know clearly about the company’s background or company’s SOP(standard operating procedure), goals and purposes of the company also. Because sometimes company’s internal control related to their SOP and it is easier for auditor to audit the company. As an auditor, they should understand that they do testing internal control over financial statements, know clearly which internal control that should be in place in safeguard assess and justify company’s work as well as make a recommendation. 

created by:
Lintang Maharani
C1L014028
International Accounting
Jenderal Soedirman university

References:

- http://www.investopedia.com/terms/i/internalcontrols.asp

- https://www.forbes.com/sites/jeffthomson/2015/09/24/the-importance-of-internal-controls/#656021b63d4a

- https://uiowa.edu/audit/what-are-internal-controls

- https://www.k-state.edu/internalaudit/intcontr.html