The Limitations of the Internal Control System

The Limitations of the Internal Control System

Introduction

Internal Control is a comprehensive system that helps an organization safeguard assets, operate efficiently and effectively, ensure proper reporting of financial information, and to be in compliance with any and all applicable laws and regulations. In order to have an effective Internal Control System five key elements must be present.

The five key elements required are:

Control Environment

Risk Assessment

Control Activities

Information and Communication

Monitoring and Internal Control Limitations

Discussion

In this paper, being an accountant at a local CPA firm which is involved over conducting an auditing of accounting records of ABC Company. It is required to keep accounting department regarding the limitations of the internal control system in preparation for an upcoming audit.

Limitations of the Internal Control System

Internal Control irrespective to how effectively it is designed, they can enable to provide reasonable assurance that objectives proves to be achieved. There are some limitations which are obvious in every internal control systems which include:

Management Override

There are circumstances that high level professionals and managers may take their own personal advantage or gain and look towards overriding prescribed procedures and policies. It should keep into consideration that it should not be confused with management intervention as it occurs at times when management actions to segregates from prescribed procedures and policies for legal purpose. (Kumar, 2005, pp. 70)

Judgment

There are possibilities of limitations of internal control as decisions merely are made with judgment of human being in a situation of pressures to run business dependent on the information at hand. (Kumar, 2005, pp. 70)

Collusion

Control systems also tend to be circumvented through employee collusion. Individuals performing within a team on a collective framework may switch or change financial data or crucial management information in ways which are not accessible through control systems. (Kumar, 2005, pp. 70)

Breakdowns

There are chances that ...