INTERNAL CONTROL

Comprehension:
The main function of internal control is to put in place all the measures needed to make the
risks acceptable to the company. In other words, internal control does not eliminate risks,
nor does it guarantee that objectives will be achieved. It is the responsibility of the
management function to take the decisions necessary to achieve them and to ensure that
risks are properly covered. It is crucial to the performance and smooth running of the
company, because it is through it that we can ensure this. Each component of the company
is controlled, not in the sense of repressive or compliance control, but in the sense of control
of proper functioning, detection of weaknesses and alerting in case of need.
The main objective of internal control is simple and unique, and corresponds to the most
relevant translation of the English word "internal control": it is the control of risks, when this
takes place by using the organization's own resources alone. This implies, on the one hand,
giving a definition of risk, given that it may be a question of risks of very different natures
and, on the other hand, determining what is meant by control. If we consider that there are
four possible behaviors in the face of an identified risk (tolerate, treat, transfer, terminate),
internal control consists of treating it to make it acceptable to the company's management.
As with any management system, the success of an internal control system depends to a
large extent on the impetus and involvement of all the components of management, and in
particular those of senior management. Information and communication, whether
institutional or financial, external or internal, ascending or descending, are to be considered
as a transmission belt that sets the company in motion towards its objectives, and that
serves to achieve its ambitions.
Other elements have the advantage of making it much easier to implement an internal
control system, such as: - the culture (or values) of the company, when it includes an
orientation towards risk, safety or ethics, - the distribution of powers through a system of
delegation, - the respect of a separation of duties. Finally, the existence of a quality
approach has many advantages, because the operating principles it induces, management
involvement, the definition of objectives, the process approach, and management by
objectives are very similar to those that prevail for internal control.
Questions:
1- Give a title to the text.
2- Provide a definition of internal control.
3- What is the objective of internal control?
4- What are the key success factors for the implementation of an internal control
system?
5- Define the terms in bold: risk/management system / senior management / quality
approach
Fill in the text with the following words:
risk /financial statements/ goes public/shares/efficiency/losses/employees /stock
exchange.
Internal control is an interlocking set of activities that are layered onto the normal
operating procedures of an organization, with the intent of safeguarding assets,
minimizing errors, and ensuring that operations are conducted in an approved manner.
Another way of looking at internal control is that these activities are needed to mitigate
the amount and types of -------- to which a firm is subjected. Controls are also useful for
consistently producing reliable ------------.
Internal control comes at a price, which is that control activities frequently slow down
the natural process flow of a business, which can reduce its overall --------. Consequently,
the development of a system of internal control requires management to balance risk
reduction with efficiency. This process can sometimes result in management accepting a
certain amount of risk in order to create a strategic profile that allows a company to
compete more effectively, even if it suffers occasional ------- because controls have been
deliberately reduced.
A system of internal controls tends to increase in comprehensiveness as a firm increases
in size. This is needed, because the original founders do not have the time to maintain
complete oversight when there are many -------- and/or locations. Further, when a
company --------------, there are additional financial control requirements that must be
implemented, especially if the firm's --------- are to be listed for sale on a ----------. Thus,
the cost of controls tends to increase with size.