Financial Accounting Concepts

Why internal control is necessary for accounting system

Internal control procedures in accounting are the policies and procedures implemented by a company to ensure the reliability of financial reporting, safeguard assets, and promote operational efficiency.

These controls are designed to prevent fraud, errors, and irregularities in the financial reporting process.

Types of Internal Control Procedures

Internal control procedures can be classified into three main categories:

Preventive controls are designed to prevent fraud and errors from occurring in the first place. Examples of preventive controls include segregation of duties, access controls, and physical safeguarding of assets.

Detective controls are designed to detect fraud and errors that have already occurred. Examples of detective controls include reconciliations, reviews of transactions, and audits.

Corrective controls are designed to take action to correct fraud and errors that have been detected. Examples of corrective controls include disciplinary action, retraining, and changes to procedures.

Reasons to Implement Internal Control Procedures

There are many different reasons why accounting systems need to have internal controls in place. The fact that it improves the accuracy and completeness of financial reporting is among the most important advantages it offers. Due to the fact that creditors, investors, and other parties use financial statements to develop judgements about firms, it is imperative that these statements be accurate and complete.

Businesses absolutely require some sort of internal control system since it helps with the discovery and prevention of fraudulent activity and corrupt practices. By implementing the appropriate processes and controls, businesses have the potential to make it far more challenging for dishonest workers and fraudsters to steal money from the organisation, as well as for the former to commit their crimes.

When it comes to the protection of a company’s assets, internal control is absolutely necessary for businesses, which leads us to our last point. Theft, fraud, and corruption are all preventable problems that may be mitigated with adequate internal controls, which can be of assistance to organisations in their efforts to safeguard their invaluable assets.


Therefore, an internal control mechanism is a necessary component of each and every accounting system. It contributes to the protection of organisational assets, the prevention of fraud and corruption, and the detection of either, as well as the guarantee of accurate and exhaustive financial reporting. Organisations put themselves at danger of financial mismanagement, fraud, and corruption when they have internal control mechanisms that are inadequate.

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