Internal control
Internal control is a systematic process of regulating, monitoring, and controlling organization internal activities.
It is an internal examination of overall organizational performance and culture.
It ensures that employees are following organization’s strategies and policies effectively and efficiently in order to achieve organizational goals and objectives.
Role of internal control in corporate governance
It makes sure that a firm is following to corporate guidelines properly.
It keep maintain the balance of interest of a firm’s each stakeholders.
It makes sure that employer and employee perform their duties responsibly.
It makes sure appropriate business operation and environment.
It keep maintain the goodwill and public’s trust of a firm.
It makes sure that all stakeholders treated equally and fairly.
It makes sure that an organization is following legal policies.
It reminds accountability and responsibility to employees and management.
It makes sure that a firm is being transparent regarding its financial statements.
To detect and prevent frauds in the company.
To detect and prevent errors in the accounting books.
To verify whether accounting books and financial statements are recorded accurately.
To make sure that standard accounting policies and format are being followed during the preparation of financial statements.
To make assure to the investors and creditors of the company.
To evaluates true value of the company’s assets and liabilities.
To contribute to management system and its performance.
To provide conclusion and feedback or opinions on financial statements.
Dependency of final audit on internal audit
Depreciation
Depreciation is a process of reduction of a value of a fixed asset due to their optimum uses. Various firms use various methods of depreciation in order figure out true value of a fixed asset which is mentioned below;
Methods of depreciation
Straight line depreciation method: An equal amount is charged for depreciation of every fixed asset in each of the accounting period.
Diminishing balance method: A fixed percentage of depreciation is charged in each accounting period to the net balance of the fixed assets.
Sum of year digit method: The depreciation amount of a fixed asset is charged to a fraction over different accounting period.
Double declining method: Depreciation is charged on the reduce value of the fixed assets in beginning of the year.
Sinking fund method: It is a method for depreciating an asset while generating enough funds to replace it.
Annuity method: It is based on the assumption if the amount that is spending in purchasing asset was invested somewhere else then it would have earned certain interest amount.
Insurance policy method: Under this method, it just doesn’t provide fund to replace an asset but also provide security to it by purchasing insurance policy of equal amount to replace it.
Discount cash flow method: It is used to estimate the value of a fixed asset on its future cash flow.
Used based method: Under this method depreciation deducted on the basis of output and machine hour of the fixed assets.
Adoption of depreciation methods is depends on the nature and size of a fixed asset. A firm adopts such methods in order to figure out the true value of fixed asset. These methods also help a firm to replace depreciated fixed assets as well.
