What is internal control and why is it important
The American Institute of Accountants first defined the term internal control in 1949, followed by further clarifications in 1958 and 1972. In 1977 publicly held companies came under legislation to adequately implement controls to protect their financial information. A report by the Committee of Sponsoring Organizations in 1992 and the Sarbanes-Oxley Act of 2002 are more recent documents defining internal controls.( Bishop, 1991,p.117-123; Colbert and Bowen, 1996, 26-35)This essay will describe and explain the internal control and discuss why is it important. There are five points about the importance of internal control, which respectively are Control Environment, Risk Assessment, Control Activities, Communication and Information and Monitoring. There are two definitions about internal control .Frist, internal control the integration of the activities, plans, attitudes, policies, and efforts of the employees of a department working together to provide reasonable assurance that the department will achieve its mission. More simply, internal control is what a department does to see that the things they want to happen will happen and the evidences they don’t want to happen would not happen.( Manea Birză,2012,p.75)Second, the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(2005) has claimed that internal control is process, effected by an entity’s board of directors, management and other personnel ,designed to provide reasonable assurance regarding the achievement of objectives in the following thing: effectiveness and efficiency of operations and reliability of financial reporting. One of important reason of why is it significant that is control environment. The control environment, sometimes referred to as “tone at the top”, is the foundation for all other components of internal control. The control environment is influenced by management’s philosophy, operating style, integrity, ethical...
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