BY:MOHAMMAD WAHID ABDULLAH KHAN
Summary: A companies system of internal control is generally designed to provide reasonable assurance that assets are properly safeguarded and that the accounting records are reliable the concept of reasonable assurance rests on the premise that the costs of establishing control procedures should not exceed their expected benefit,
Author comments: Prior I have illustrated more about the internal control in my two (02) articles “why internal control is essential in an organizations “and another one “management responsibilities for internal control” both of the articles I have elucidated that generally accepted that internal control procedures can provide reasonable and in no case, absolute assurance, that the objectives of such controls relating to accounting systems are achieved.
In this article “limitations of the organizations internal control “I have expressed that internal control could be due to the possible existence of certain inherent limitations include.
Introduction: There are inherent limitations to any system of internal control. In the performance of the control procedures, errors can result from misunderstanding instructions, mistakes of judgment, carelessness, or other personal factors. Control procedures which require a segregation of duties can be circumvented by collusion. Similarly, control procedures can be circumvented intentionally by management. Over a period of time, with changing conditions, control procedures may deteriorate or become inadequate.
Limitations:
The cost of executing a specific control should not exceed the expected advantage of the control. Sometimes there are no out-of-pocket costs to found a sufficient control. A rearrangement of duty assignments may be all that is essential to achieve the objective. In analyzing the applicable costs and benefits, administrators also need to judge the possible consequences at large and attempt to identify and weigh the intangible as well as the tangible consequences.
Internal controls should diminish the risks connected with unobserved faults or abnormalities but conniving and establishing effective internal controls is not always a simple task and cannot always be accomplished through a short set of quick fixes. But I hope this article will help to clarify the basic internal control concepts and improving an organizations department's controls. Where controls are weak or non-existent, a number of problems can result, like as
01. The difficulty of not having enough staff or other resources should be converses with organizations administrator. Nearly all cases, recompensing controls can be applied in conditions where one human being has to do all of the business-related dealings for a branch.
02. If executing a suggested control appears too luxurious, be sure to consider the full cost of a fraud that could happen as of the absent control. In calculation to any finances that may be lost, judge the cost of time that would have been spent by the department through the time of an examination of the matter, and the cost of hiring a new employee. Deception is always luxurious and the avoidance of deception is significance the cost.
03. In conclusion judge the matter of faith. The majority employees are dependable and conscientious, which is a significant factor in employee relationships and departmental procedures. But it is also the dependability of superintendents to remain objective. Experience illustrates that it is frequently the most faiths employees who are complicated in entrusting frauds.
Subdivisions manner researches are good models of spots where sound internal controls are needed. Investigate departments that have endowments and contracts with outside subsidizes are at risk that unfortunate charges will be posted to the project account, perhaps affecting current or future funding. Each branch not only has the accountability to make certain that all of their dealings are have been processed correctly, but also to make sure that other researchers are not "beating" rude dealings in the sections accounts
At a glance of limitations:
(I) condensed excellence of services or manufactured goods,
(II) Unconstitutional dealings
(III) Erroneous or unfinished information
(IV) Inappropriate news
(V) Possessions are not protected
(VI) Misappropriation of finances.
Conclusion: the size of the business also may impose limitations on internal control in a small company for example it may be difficult to segregate duties or to provide for independent internal verification.
Conversely, although the being of certain possible inherent weaknesses that would live in approximately every method, howsoever wonderful in propose, the remedial exploit taken for modification by the Management and its episodic estimation through the Systems Control Evaluation method implemented in Systems Based Audit enables the fulfillment of the principal objectives of establishing and effectively operating Internal Control Procedures.
About the Author
MOHAMMAD WAHID ABDULLAH KHAN
S/O MOHAMMAD SAADULLAH KHAN
Mr. Mohammad Wahid Abdullah Khan is the Project director of “Max Textiles Ltd”.Mr. Wahid has been in accounting field since 1999. Prior to that he had completed over ten (10) years in various fields of Business like - Accounts, Finance, Internal & External Audit, project budgeting and project costing related positions in some of the largest group companies & the join venture companies in Bangladesh.
He consults about small- medium business owners and services professionals, business consulting service and project process. He is most experience in Financial Risk Assessment, Financial analysis, Financial Advising and Project Cost Analysis. He has published more than 200 articles & case study in different international journals. Such as Business, finance, personal finance, international finance, auditing, Risk assessment topic and performance & industrial related,
Mr. khan’s most popular articles is “WAK” Model - The way of best solution for an organization internal audit process,( 1st,2nd,& 3rd part) “WAK” Model”- for successful financial resource , “Wahid khan”- cost analysis, Wahid theory – the key of dynamic series for successful financial consulting, Wahid techniques – the Significance and dependability manner for Performance audit(1st,2nd,& 3rd part) Wahid’s Opinion - non-conformity among the performance audit and financial audit, Wahid’s view- The cogent task and the confront of financial/economic analysis in the modern business decision making , Wahid’s outlook - The Business Financial Analysis Should Be Included several required Documents with the analysis report or plan, WAHID’S JUDGMENT- difference strategic plan as opposed to an operational plan ,WAHID’S METHOD– the charismatic and fruitful guideline for financial investment decision making ,WAHID’S MEASURE - the influential and evaluated of similarity between profit & non- profit business planning & Wahid’s philosophy- The examined & careful consideration of strategic planning against business planning,& PPBS MODEL,
He has consulted with more than 30 service & product companies, in recent years Mr. Khan has been spending most of his professional time for financial consulting, Mr. Wahid is the owner of “WAM Associates” and “WAK business solutions”
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