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5 components of internal control system.

Internal Control is the process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness  and  efficiency of  operations  and  compliance  with  applicable  laws  and regulations.



Internal controls are put into place to enable the organization achieve its objectives. Therefore the internal control differ from one organization to another since every organisation have its own objectives also internal controls may differ  from one organization to another due to factors such as nature of business, regulatory environment and complexities of the business.

internal control covers all activities of the organization such as production, human resources and financial statement preparations. 



In an effective internal control system, the following five components work to support the achievements of an organisation’s mission strategies and related business objectives.

Control Environment – includes the governance and management functions and attitudes, awareness and actions of those charged with governance and management, concerning the entity’s internal control and its importance in the entity.

Entity’s Risk Assessment Process – a component of internal control that is the entity’s process for identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks and the results thereof.



Information System and Communication – a component of internal control that includes the financial reporting system and consists of procedures and records established to initiate, record, process and report entity transactions (as well as events and conditions) and to maintain accountability for related assets, liabilities and equity.   Communication, which involves providing an understanding of individual roles and responsibilities pertaining to internal control over financial reporting, take such forms as policy manuals, accounting and financial reporting manuals and memorandum.  Communication also can be made electronically, orally and through the actions of management.

Control Activities – those policies and procedures that help ensure that management directives are carried out.



Monitoring – a process to assess the effectiveness of internal control over time.  It includes assessing the design and operation of controls on a timely basis and taking necessary corrective actions modified for changes in condition.

1 thought on “5 components of internal control system.”

  1. Pingback: 8 matters to consider in determining if the deficiency in internal control is significant. - ACCOUNTING CLASS

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