According to paragraph 13 of ISA 400, ―Risk assessments and internal control‖the objectives of internal controls is: –
a) To enable management carry out the business in an orderly and efficient manner. Internal controls lay out the various procedures to be followed in conducting the affairs of the organisation. E.g. there will be procedures laying out the procedures to be followed in procuring raw materials to ensure that only necessary materials are procured which meet the quality standards of the company.
b) To ensures adherence to management policies
Management policies vary from the broad objectives to the detailed policy matters necessary to make those objectives realisable. Internal controls also serve a check to ensure that management policies are followed, e.g. if there is a requirement that quotations should be obtained when procuring materials, checks could be carried out to ensure that this is actually being met.
c) To safeguard the company‘s assets
Some controls are designed specifically to ensure the assets of the company are protected from theft, destruction and that they are used in the best interest of the company.
This can either be directly through physical locking up or indirectly through recording. It includes assessing assets and ensuring that any access is authorised.
d) ICS help in ensuring completeness and accuracy of the records maintained. The company‘s Act requires that a company keep proper books of accounts. These records are the basis for the preparation of the financial statements.
e) Strong internal controls help in preventing and detecting errors and frauds. The responsibility for the prevention and detection of fraud and error rests with management. This is achieved through the implementation and continuous operation of an adequate system of internal controls. Such a system reduces but does not eliminate the possibility of fraud and error.
