Introduction
Accounting control is the process of enforcing and restricting the use of accounting or financial data to ensure accurate and timely reporting of financial information to management. This controls the day-to-day activities of accounting departments and ensures that the financial statements or reports prepared and issued by the company are reliable, accurate and compliant with applicable laws and regulations. Accounting control falls under the larger umbrella of financial controls, which also cover internal controls, external controls and compliance controls.
Internal Controls
Internal controls encompass the policies and procedures of an organization to ensure the accurate accounting of financial data, protect assets from improper use and detect any discrepancies when preparing and analyzing financial documents. Internal controls should include the prevention and detection of fraud and the prevention of errors or mistakes in the accounting process. All levels of the organization can be actively involved in identifying and developing internal controls, including executives, department heads, managers and accountants. Key components of a good internal control system include security and segregation of duties, as well as use of pre-approved forms and procedures for transactions; regular physical inventories and reconciliations to ensure assets are present; and periodic reports or reviews of financial statements.
External Controls
External controls involve the use of accepted accounting principles, procedures and standards to ensure reliable financial reporting and compliance with applicable laws and regulations. External controls typically involve the use of outside accounting professionals and preparers of financial statements who are familiar with accounting principles, standards and laws. The purpose of external controls is to ensure accurate and timely reporting of financial information and to monitor the accuracy of internal controls.
Compliance Controls
Compliance controls are designed to ensure compliance with external laws and regulations. These controls involve understanding applicable laws and regulations and implementing procedures to ensure compliance and minimize any risk of non-compliance. These procedures may involve ensuring that all applicable regulations are being followed, that any required documentation and information is collected and stored properly and that any necessary audits and reports are completed on a timely basis.
Conclusion
Accounting control is a critical component of financial control and involves the use of internal, external and compliance controls to ensure the accuracy of financial information and compliance with applicable laws and regulations. Internal controls involve enforcing policies and procedures to protect assets and to accurately report financial information. External controls involve the use of outside professionals and accepted accounting principles to ensure the accuracy of financial reports. Compliance controls are designed to ensure that all applicable regulations are being followed. All three components of accounting control are essential to providing timely, accurate and reliable financial reports to management.
