As part of its resource centre the International Federation of Accountants (IFAC) issues out guidance papers and practice tools for its members and anyone whose signs up for their website. This provides information from all their relevant standards setting bodies that include Audit and Assurance, Education, Ethics and Public Sector.
IFAC recently posted the Good Practice Guidance on Evaluating and Improving Internal Control (IC) in Organizations. The document was initially published on 28 June 2012 and was recently recirculated. Due to the importance of internal controls for any business this practice guidance is a must read.
It highlights “areas where the practical application of existing internal control standards and frameworks often fails in many organizations”.
- As a professional accountant in business its great to know how to implement internal controls as it is crucial in light with the national drive for good Corporate Governance and to assist in risk management for any opportunities and threats that the organisation is willing to take. This guide can be used by both Finance Personnel and Internal Audit Personnel.
- As a professional account in practice, it is a good way to understand effectiveness of internal control risk management policies and for planning purposes when carrying out risk assessments for internal control at the governance level and the individual controls for your audit client. This can also assist in giving clients a value adding audit by giving them pointers on how to evaluate and improve internal control.
- Students are better able to understand risk management in the context of internal control and how this can contribute to good corporate governance for examinable areas.
IFAC tries to assist in answering the following key questions when it comes to internal controls
- What should the scope of internal control be?
- Who should be responsible for internal control?
- How should controls be selected, implemented, and applied?
- How can internal control be better integrated into the DNA of the organization?
- How should the organization report on internal control performance?
9 Key Principles of Evaluating and Improving Internal Control
These principles will help avoid some of the following common pitfalls
- Responsibility of line management instead of being side-lined: It needs personnel who do not lack the authoritative power to reiterate importance
- Changes perception of internal control from a compliance checklist to a performance enabler through e.g. taking on more risk which can be evaluated and managed through internal control
- Turning a poor “tone at the top” into a motivational culture
- Rewarding risk taking and internal control
- Insufficient internal control competence is also a risk
- From being in control to achieving one’s objectives
- Embedding internal control: from the shelf to the minds of employees
- Reporting on structure and performance
For the IFAC detailed summary on Evaluation and Improving Internal Controls Executive Summary IFAC Website and the detailed good practice guidance Detailed Good Practice Guidance on Evaluating and Improving Internal Control
To access these documents you may need to sign up to the IFAC website if you are not already signed up as a member and this will take 5 minutes with no charge for accessing such documents.
The above information has been sourced and summarised from the IFAC Good Practice Guidance on Evaluating and Improving Internal Control and as it suggests, this is not prescriptive but guidance on what professional accountants in business can use for internal controls evaluation and improving internal controls.