‘Historically, internal audit has been viewed as a monitoring function, the "organizational policeman and watchdog" (Morgan, 1979, p. 161), tolerated as a necessary component of organizational control...

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Executive Summary
Growth in the organization is increasing more complexities in the internal environment
that are creating more business risks. It is essential for the organization to have an effective
internal control system to control the risks and internal audit system to check the effectiveness of
the internal control system of the company. Nature of internal control is to develop various
policies and procedures to develop a reliable information system that will result in better decision
making. Nature of internal audit is that they will act as a separate entity within the organization
and are independent to perform the audit and prepare the reports without any biases about the
effectiveness of the entire business including their internal control system. The purpose of the
internal control system is to identify the risk that is present in the organization and to eliminate
them so that it will not create more business risks. Accounting plays a major role in every
usiness, and it is the primary area of focus for the internal control risks and systems.
The company should develop various control points that will indicate about the deviation
at the initial stage and will result in making co
ective actions to rectify them. Companies should
make use of COSO framework for developing best internal control procedures. Contingency
theory and stewardship theory supports the proposed audit procedure that is making use of
quantitative techniques to measure the deviations. There is a requirement for extending the
internal audit services to enhance the overall efficiency of the business. Internal audit should be
expanded to the areas of risks. Internal audit will provide an overview of the performance of the
usiness that is critical to their success. The major issue associated with the internal control is
that it is not easy for the organization to segregate every roles and responsibility. It is essential
for the companies to consider the various issues associated with them to develop best internal
control mechanisms for the company.
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Introduction
Growth in the organization is increasing more complexities in the internal environment
that are creating more business risks. It is essential for the organization to have an effective
internal control system to control the risks and internal audit system to check the effectiveness of
the internal control system of the company. In the past, there are more incidents around the world
where there were poor internal control system and has caused more issue to the company. Frauds
are committed at all level that is it is not limited to the operations or managerial employee. There
are cases where accounting frauds are performed as per the instruction of top management to
meet their organizational goals. In this paper, there is detailed discussion about the importance of
internal control and audit, accounting and internal control risks and systems, control risks and
procedures to mitigate risks, internal audit and control procedures, discussion on extending
internal audit horizons and issues related to internal control and internal audit.
Importance of Internal Control Audit to Business
There is an increase in the various types of business risks across the globe. Business risks
are present in every organization that is causing a hindrance for an organization to accomplish
their goals and objectives. On the other way, the business risks are causing more trouble to the
global economy. For example, the great recession of 2008 in the US that resulted from the poor
internal control and risk management system of the major financial institutions. There are more
instances where poor internal control and audit procedures have to cause more trouble to various
stakeholders and result in fall of large enterprises.
Nature of internal control is to develop various policies and procedures to develop a
eliable information system that will result in better decision making. These internal control
criteria are developed by the management, board and other key personnel of the organization
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(KPMG, 1999). Nature of internal audit is that they will act as a separate entity within the
organization and are independent to perform the audit and prepare the reports without any biases
about the effectiveness of the entire business including their internal control system. The board
establishes the internal audit, and they have their set of rules and regulation framed by the board
and makes use of various frameworks to achieve excellence.
The purpose of the internal control system is to identify the risk that is present in the
organization and to eliminate them so that it will not create more business risks (Money Matters,
n.d.). Internal audit scope is to ensure that the presented information by the company are reliable
with a higher level of integrity or nor and whether all the required compliances related to policies
and procedures are met. The main purpose of internal audit is to know whether the assets of the
company are safeguarded, and there are efficient uses of resources or any misuse of the
esources. It will enable both company and the stakeholders including external auditors and
shareholders to know about the business risks that are involved in the company (Patilis, 2004).
For instance, a company’s inventory manager is misusing the resources and the internal
control system did not highlight or identify the issue but it is having an adverse impact on the
financial position and performance of the company. By conducting an internal audit, the internal
auditor will be in a position to identify the area of problem and existence of fraud and weakness
of internal control system to the company. It will provide a great opportunity for the business to
mitigate such risks. It provides quantitative information by quantifying the weakness and
problems using the numbers and qualitative information by indicating the areas where strategy
should be implemented for the improvement.
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Accounting and Internal Control Risks and Systems
Accounting plays a significant role in every business, and it is the primary area of focus
for the internal control risks and systems. Every business has a separate department for
conducting their respective operations, and they generate numbers that are used for preparing the
financial statement that is critical for evaluation. Any mistake commitment by any one of the
employee deliberately for tampering the financial statement quality will create risks to the
internal control system.
Every activity of the business is inte
elated, and the costs are incu
ed on an incremental
asis. It makes the employees indulge in fraud that will provide personal profits at the loss of the
company. A weak internal control system cannot identify these e
ors easily as they will not pay
attention to minute details. Internal control is the process that is integrated with all the activities
of the business. The management mainly uses it for monitoring the overall activities of the
usiness and identify the deviations.
If the e
ors are unnoticed, it will cause a huge problem to the entire organization system
and financials of the company. It is the responsibilities of the management to manage all the
esources of the company in an efficient manner. Among all accounting is the area that causes
huge risks to the control and the system. There could be more misuse of available cash and other
esources without any accountability of employees.
There are more chances of theft in the inventory and accounting as stolen from the
warehouse. Similarly, there are more chances of increasing the amount of wastage in the
production and misusing the products. The other major issue is that quality control can reject
good products and cause loss to the company and then sell them in the market unofficially. These
are risks present in the organization and cannot be easily identified by the management to control
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them, and they will have a direct impact on the overall performance of the business. There are
chances where the staffs can create duplicate customer and record them as goods sold on credit
and finally report them as unrecovered that will result in huge accounting frauds. A Poor internal
control system will cause a huge risk to the entire business.
Control Risks and Procedures to Mitigate Risks
The internal control system should be such that it must create accountability in the entire
internal environment. The process of the company should be clear without more complexity in
them. It will result in company identifying the risks and the process that is causing more risks to
the internal environment of the company. If there is a problem in the internal system, then it will
cause huge accounting frauds and weakness to the entire control system.
Control risks and procedures are critical for any business. If the business is ignorant
about the risks that they are facing then it will...