Organizations require internal controls to serve the interests of their stakeholders. Although the concept has different definitions depending on the context of its use, it generally means “guidance, regulation, restraint, and oversight” (“Internal Control Using COBIT 2”). In a business context, those aspects refer to approaches that monitor and direct business operations to improve productivity. The entire process involves internal control that provides central oversight for decisions made within the firm. Although it is a complex concept, the white paper “Internal Control Using COBIT® 5” offers important information that makes the procedure easier to understand and apply it in practice.
The document provides a working definition of the concept. Notably, it is the “policies, procedures, practices, and organizational structures” that encourage employees to work towards achieving objectives through proper risk management (“Internal Control Using COBIT 2”). The description suggests the need to look at internal controls beyond the risk management perspective, which might be limiting. The article narrows down to the definition of the concept in COBIT® terms, which regards it as an enabler that supports achievement of objective(s). It is worth noting that organizations have goals that everyone should strive to achieve. The Generally Accepted Accounting Principles (GAAP) are an example of controls that enhance responsible accounting such as financial reporting (“Internal Control Using COBIT 3”). Those mechanisms ensure accountability in the realization of fiscal operations.
Organizations can improve their operations through effective control systems. Internal control is necessary and effective in supporting accountability in business. Such regulations require a systematic way of bringing together the mechanisms that ensure a company achieves its objectives and manages its risks. The systems are important due to the increase in accounting scandals in the recent past. They are the basis for effective corporate governance and financial reporting through internal audit (Badara and Saidin 16). Such a structure allows a company to identify gaps to bridge, improve control, and facilitate the internal assessment. The leadership should ensure that they have a working system that integrates various resources to improve internal control.
Effective internal control systems have practice areas that implementers should incorporate. They include “controlling, risk management, quality management, audit and assurance, and information security” (“Internal Control Using COBIT 4”). Those aspects promote internal control by setting a platform for a company to achieve effectiveness and efficiency. In addition, the “system of internal control” in the United States suggests particular measures to guarantee success and efficiency of an enterprise’s operations that can benefit stakeholders (“Internal Control Using COBIT 5”). The governing body initiates such needs and implements options to address them openly and responsibly. Information technology provides the necessary data for the successful management of internal operations. Companies that implement effective systems can add value to their stakeholders and operate competitively and profitably.
Internal control is a critical activity for organizations to remain accountable to the stakeholders. Leaders should understand the importance of this process and the changes that occur through the life cycle of a business. They need to comprehend the various factors that affect internal control and manage them to make the activity effective and efficient. Besides, they should implement information systems that facilitate internal audit and financial reporting. More importantly, they require reliable data to expedite the process. Overall, modern challenges, such as business scandals, necessitate greater accountability for businesses to add value and achieve stakeholders’ needs.
Works Cited
“Internal Control Using COBIT® 5.” An ISACA Framework, 2016.
Badara, Mu’azu Saidu, and Siti Zabedah Saidin. “Impact of the Effective Internal Control System on the Internal Audit Effectiveness at Local Government Level.” Journal of Social and Development Sciences, vol. 4, no. 1, 2013, pp. 16-23.
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