Understanding the Internal Control System, its Purpose & Complete Elements

Understanding the Internal Control System, Its Purpose & Complete Elements – In this discussion we will explain about the internal control system. Which includes the understanding of the internal control system, the objectives of the internal control system and the elements of the internal control system with a complete and easy-to-understand discussion.

Understanding the Internal Control System, Its Purpose & Complete Elements

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Definition of Internal Control System

Internal control system or also called internal control is a process that is influenced by resources people and information technology systems, which are created to assist the organization in achieving a goal or objective certain.

Internal control is a way of directing, supervising, and measuring the resources of an organization or company. This system has an important role in preventing and detecting fraud and protecting good organizational resources tangible (such as machinery and land) or intangible (such as reputation or intellectual property rights such as brands trade).

The internal control system includes the organizational structure, methods and measures that are coordinated in maintaining organizational wealth, checking the accuracy and reliability of accounting data, giving impetus to efficiency for policy compliance management.

The control has a narrow or broad meaning, which in this case the narrow meaning of internal control "internal check" is a system and procedure that can automatically check each other.

In the sense that the accounting power obtained by a part or function can automatically be checked by another part or function in an effort. While the broad meaning of the AICPA defines internal control as follows:

Internal control includes the organizational structure and all of the coordinated methods and tools used in the company that aim to maintain the security of property. company, check the accuracy and correctness of accounting data, promote efficiency in operations and help maintain, comply with predetermined management policies first.

Internal control is a process regulated by the board of commissioners, management and other business unit personnel designed to obtain assurance adequate for the achievement of objectives in the following respects: reliability of financial statements, compliance with applicable laws and regulations, effectiveness and efficiency operation.

Internal Control System According to Experts

In this case, the definition of the internal control system according to Mulyadi includes organizational structures, methods and measures that are coordinated to maintain organizational wealth, check the accuracy and reliability of accounting data, promote efficiency and encourage compliance with policies management.

Meanwhile, according to Romney and Steinbart (2003) understanding of internal control is "internal control is the plan of organizations and the method of business use to safeguard assets, provide accurate and reliable information, promote and improve operational efficiency and encourage adherence to prescribe managerial policies".

Purpose of Internal Control System

There are objectives of the internal control system, among others:

• Safeguard the organization's wealth
• Carry out checks for accuracy and reliability of accounting data
• Provides operational efficiency boost
• Provide compliance with management policies.

Based on its objectives, the internal control system is divided into two types, namely:

• Accounting internal control includes organizational structure, methods and measures that are coordinated primarily to maintain company assets and check the reliability of accounting data.
• Administrative internal control includes organizational structure, methods and measures that are coordinated primarily as a driving force for compliance with management policies.

Elements of an Internal Control System

To carry out an internal control system in achieving the main objectives of a company's internal control system is composed of the following elements:

Structure that separates functional responsibilities strictly. The organizational structure is a framework of "framework" for the division of functional responsibilities in organizational units created to carry out core activities of the company. The division of functional responsibilities in this organization is based on the following principles:

• It is mandatory to separate operating functions and deviations from the accounting function
• A function cannot be given full responsibility to perform all stages of a transaction.

A system of authority and record-keeping procedures that provide adequate protection for wealth, money, income and expenses. Within the organization, each cost transaction only occurs on the basis of authorization from an official who has the authority to approve the transaction.

Therefore, in the organization it is mandatory to create a system that regulates the distribution of authority for the authorization of the implementation of each transaction.

Healthy practice in carrying out the duties and functions of each organizational unit, division of functional responsibilities and authority systems and procedures The recording that has been determined will not be carried out properly if there are no ways to ensure healthy practices in carrying it out. The following are ways that companies can use in carrying out healthy practices, including:

• The use of printed serial numbered forms whose use must be accounted for by the authorities.
• Surprise audit “surprised audit” with irregular schedule
• Each transaction is not carried out from beginning to end by one person or an organizational unit, without any intervention from another person or organizational unit.
• Routine "job description" rotation will prevent officials from colluding in carrying out their duties.
• The obligation to take time off for eligible employees.
• Regularly conduct physical checks of assets with its records to safeguard the organization's assets and check the accuracy and reliability of accounting records.
• Establish an organizational unit that functions to check the effectiveness of other elements of the internal control system.

Employees who need according to their responsibilities. To obtain competent and trustworthy employees there are several ways that must be taken by the company, namely:

• Selecting prospective employees according to the requirements demanded by the job.
• Develop the education of dive employees to become company employees, in accordance with the demands of the development of their work.

Thus it has been explained about Understanding the Internal Control System, Its Purpose & Complete Elements, hopefully can add to your insight and knowledge. Thank you for visiting and don't forget to read other articles.