key term - Internal controls

Definition

Internal controls are processes implemented by an organization to ensure the integrity of financial reporting, compliance with laws and regulations, and effective and efficient operations. They help prevent fraud and protect the organization's assets.

5 Must Know Facts For Your Next Test

1. Internal controls include preventive measures like authorization protocols and detective measures like reconciliations.
2. The COSO framework is a widely recognized model for designing, implementing, and evaluating internal controls.
3. Segregation of duties is a critical aspect of internal controls to prevent errors and fraud.
4. Internal controls must be regularly reviewed and updated to adapt to new risks and changes within the organization.
5. Effective internal controls can reduce the risk of asset misappropriation, fraudulent financial reporting, and non-compliance with regulations.

Review Questions

Related terms

Fraud:

Intentional deception made for personal gain or to damage another individual.

Segregation of Duties:

The practice of dividing responsibilities among different people to reduce the risk of error or inappropriate actions.

COSO Framework:

A model designed to help organizations implement effective internal control systems.