Internal Systems of Control

Corporate governance is the system by which a company is directed and controlled. The directors, or management, of a company are those individuals responsible for this.

As stewards of a company (i.e. they run the company on behalf of the owners), directors are responsible: for making operational decisions in the best interests of the owners; safeguarding the assets of the owners; and providing the ownedrs with relevant and timely information that they can use to assist with their decision making.

One of the key components of this is the need to implement internal control systems. They are vital to the effective operation of the company.

The are of particular significance to and auditor because the strength of a client's internal controls directly impacts the risk of:

• non-compliance with laws and regulations,
• fraud, and
• misstatement in the financial reporting system.

Auditors therefore have to gain an understanding of the strengths and deficiencies of the system to assist their risk assessment during the planning process. This includes:

• understanding the components of the internal system of control,
• documenting and testing the system, and
• identifying and reporting deficiencies in the system.

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Tags:	Internal control;Control;fraud;laws and regulations;deficiencies in control