Internal control
From Wikipedia, the free encyclopedia
Internal control is an activity (or interconnected number of activities, a system of internal control) to increase the likelihood that the goals of an organization will be met or risks to the organization will not materialize.
The concepts of corporate governance heavily rely on the necessity of internal controls. Often it is the task of an organization's Internal Audit function to assess whether the controls are properly designed, implemented and working effectively, and make recommendations on how to improve internal control.
There exist externally imposed regulations on Internal Control over Financial Reporting in a number of jurisdictions. In the U.S. these regulations are specifically established by Sections 404 and 302 of the Sarbanes-Oxley Act. Guidance on auditing these controls is specified in PCAOB Auditing Standard No. 2. To provide reasonable assurance that internal controls involved in the financial reporting process are effective, they are then tested by external auditors or public accountants.
[edit] Definitions
- The IIA's definition of internal control:
"Any action taken by management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved. Management plans, organizes, and directs the performance of sufficient actions to provide reasonable assurance that objectives and goals will be achieved."
- COSO:
See the definition on COSO's home page [1]
- The ECAR Model (narrower definition):
"Internal control is control that in an administrative sense, built within the process, is ensuring accomplishment of the plan that any goal-oriented process has got." [2]
