Understanding the internal control system according to experts and components in it
The internal control system within the company includes organizational structures, methods, and all sizes coordinated to maintain the company’s wealth, monitor the accuracy and reliability of accounting data, helping to define and encourage the coins of the company’s management policy.
In a narrow sense, the internal control system is a system and also a procedure that automatically can check each other. That is, all accounting data generated in a part of its function will automatically be able to be examined by parts or other functions within a company.
Whereas in a broad sense, the American Institute of Certified Public Accountants (AICPA) describes the internal control system as follows:
The internal control system includes organizational structure and the entire way and also coordinated tools and is used in the company to maintain the security of the company’s property, examine the accuracy and accuracy of accounting data, increases efficiency in operations, and helps maintain the previously established management policy.
Understanding the Internal Control System
So, the internal control system is an effort that is influenced by the Board of Commissioners, Management, and other business unit personnel made to have sufficient confidence related to achieving goals in terms of reliability of financial statements, accuracy with existing rules, effectiveness, and operational efficiency company.
The internal control system according to experts
Mulyadi explained that this internal control system includes organizational structures, methods, and various sizes coordinated to be able to maintain the wealth of the company, examine the accuracy and also reliability of accounting data, encourage efficiency, and also the wisdom of the company’s management.
The company’s management parties have a responsibility in maintaining and also building the control framework for the company’s structure such as accounting information systems (SIA), operational information systems or management, and also organizational systems.
This becomes very important because control and various security measures must be applied in the company’s formal structure and must be strong. In this case, the control framework is referred to as internal control or the structure of internal control (SPI).
This structure provides a means through the internal control process. If the company can implement the right SPI, then all operations, physical resources, and data will be monitored and well-controlled to be easily controlled. So, the company’s goals will be more easily achieved, and various risks will be more minimized well with the results of more reliable information.
The Importance of Process of Control and Control of Accountant Action
As the main user of the Accounting Information System (SIA), an accountant must have an active role in developing and also studying SPI and framework.
They must also be able to work with system designers in the stage of developing information systems to ensure that the planned control measures can be appropriate and also auditable.
Internal Control System Components
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) said that the internal control system includes five main components, namely:
1. Environmental control (Control Environment)
The control environment is the basis of all components of the internal control system that can make a company organization more disciplined and structured.
This controlled environment includes the atmosphere of the organization and management attitude and employees of the importance of controls contained within the organization.
2. Risk Assessment (Risk Assessment)
Risk assessment is the identification of analysis and risk management in a company. An identified risk will be more easily analyzed so that it will be easier to estimate the action to be minimized.
3. Control Activities (Control Activities)
Control procedures are policies or procedures created to be able to ensure the achievement of company goals and also prevent fraud that might occur.
4. Monitoring (monitoring)
Supervision is an attempt to assess the quality of the performance of the internal control system in a company. This supervision was carried out to find shortcomings and also increased the effectiveness of internal control.
5. Information and Communication (Information and Communication)
This information is very necessary by the company outside. Management can use this information in assessing external standards. Communication in this case also involves the provision of a clearer understanding of one’s roles and responsibilities related to internal control in financial statements.
The purpose of the internal control system
Based on the explanation above, we can conclude that the purpose of the internal control system is to maintain the wealth of the company, examine the accuracy and accuracy of accounting data, improve the company’s operational efficiency, and increase the policy-made policy-made.
Based on the aim, the internal control system can be divided into two, namely:
- Accounting internal system control includes organizational structure, methods, and various sizes that can be coordinated, especially to be able to maintain the company’s wealth and examine the accuracy of accounting data.
- Internal administrative control includes organizational structure, methods, and various sizes that can be coordinated, especially to increase the implementation of management policies that have been made.
Elements of the internal control system
To be able to carry out an internal control system in achieving its success, SPI in a company must consist of several of the following elements:
1. Structures that are expressly able to separate functional responsibilities
The organizational structure is a framework for giving functional responsibility in each team unit that has been formed to be able to carry out various basic activities of a company. Provision of functional responsibility in this organization is made with the basis of the following principle:
- Must be able to separate operational functions and deviations from the accounting function
- A party in a function is not allowed to be given full responsibility to do all stages in a transaction.
The existence of a system of authority and good recording procedures can provide sufficient protection in wealth, money, income, and company costs.
In an organization, each cost transaction only occurs based on the authorization of officials who do have the authority to approve the occurrence of these transactions. For this reason, the company must create a system that can regulate the division of authority to authorize the occurrence of each transaction.
Good practices in carrying out their duties and functions in each organizational unit, the distribution of the authority of functional responsibility and the authority, and also the procedure that has been set will not be able to be applied properly if it is not made in guaranteeing the healthy practice.
Well, here are some ways that companies can do in carrying out healthy practices.
- Using a form that has a print number for each wearer that must be accounted for by those who have authority.
- Conduct impromptu checks or surprise audits with schedules that are unable to predict other parties.
- Every transaction may not be done from the beginning to the end by one person or an organization unit, there must be interference from people or other teams.
- Regular turnover of positions to avoid the conspiracy of officials in carrying out their duties.
- Provide leave rights to employees who already have rights.
- Doubling the checking and adjustment of physical assets with a periodic record to maintain organizational wealth and examine the accuracy and also reliability of accounting records.
- Establish an organizational unit in charge of checking the effectiveness of other SPI elements.
In this case, the employee whose performance is good is what is following the responsibilities that have been given to him. To be able to have competent and trustworthy employees, the company can do the following ways:
- Select prospective employees based on the requirements demanded by their work.
- Conducting employee education during their company employees following the demands and developments in their work.
Thus the explanation of us is about the understanding of the complete internal control system and various components in it.
So, briefly, we can conclude that the internal control system is a system and also a procedure that automatically can check each other.
The various components contained in the internal control system include the control environment, risk assessment, control procedures, supervision, and information and communication.
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