In this article we will define the concept of internal control in an organization and the difference between internal control and internal audit.
From January 1, 2013, according to Art. 19 of the Federal Law No. 402-FZ dated 06/12/2011 “On Business Accounting”, all economic subjects must exercise the internal control of the performed business operations and internal control over maintenance of accounting records and preparation of accounting statements.
The requirement to organization and execution of the internal control provided for by Article 19 of the Law is a general provision and is not connected with availability or absence of requirements concerning the compulsory nature of the audit.
Thus, the company shall have a special control system in this area.
The lack of regulations for the internal control system does not provide for the reasonable assurance of achievement of objectives from the perspective of reliability of the financial (accounting) statements, efficiency and effectiveness of economic operations and business compliance with the current regulatory legal acts.
No official forms of documents and explanations to this statutory provision have been issued until now, therefore they must be developed and approved, which causes some difficulties in most companies.
The specialists of Sterngoff Audit have extensive experience in development and implementation of regulations for the internal control system within the framework of a specific enterprise. The cost of services is determined on a case-by-case basis considering all peculiarities of the company.
The internal control system is the system developed, implemented and maintained by the persons responsible for corporate governance, management and by other employees to provide for reasonable assurance of achievement of the organization objectives with respect to reliability of the financial statements preparation process, efficiency and effectiveness of operations and compliance with applicable laws and regulatory acts.
That means it is a set of procedures and methods applied in the company and designed to ensure compliance with the current legislation, protection of own assets and information, preparation of reliable and correct accounting and financial statements, identification and elimination of errors both in accounts and in the company internal processes in general.
ICS is to minimize the risks in each area, in each business process of the company by building the control environment and adequately responding to the discovered threats.
More detailed definition of the internal audit is provided by the International Institute of Internal Auditors.
Internal audit is the activity related to provision of independent and objective guarantees and consultations aimed at improvement of the organization operations.
Internal audit helps the organization to achieve the set objectives using the systematic and consistent approach to evaluation and enhancement of efficiency of the risk management, control and corporate governance processes.
Having familiarized with the terms of internal control and internal audit, we may see the principal difference between these two concepts i. e.:
ICS is set up within the organization by responsible persons and represents a system of measures arranged by the company management and taken in the company for the purpose of the most efficient execution by all employees of their duties where performing the economic operations, and internal audit is an independent evaluation and analysis of already existing ICS and business processes of a company.
Each organization shall develop its own regulations for the internal control system based on its business processes, structure, specific features of activities, job descriptions, implement and control it.
The company management shall organize and maintain at proper level such internal control system, which would be sufficient:
Internal audit is conducted by a specially organized internal audit group.
The management and owners of a company expect and want to be sure that the set objectives will be accomplished and planned targets will be achieved, and at the same time the operations of the organization and actions of employees comply with the current legislation, approved technologies, adopted principles and rules etc. For this purpose, the system management of risks is established and implemented in the organization and the efficiency of the internal control and audit system is continuously improved.
Consequently, an object of work of the internal audit division may be any process, functional area and system in the organization activity, e. g.: procurement of inventories, personnel management, preparation of the financial (accounting) statements, management reports, information technologies, corporate culture etc.
Distinctive features of the internal audit are:
The priorities within the internal audit are determined by the organization owners and managers based, as a rule, on the understanding and evaluation of the existing risks and views on the problematic business issues.
So we can see that internal control and internal audit are two absolutely different concepts carried out, nevertheless, for one common purpose – improvement and optimization of the company business.
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