EVALUATION OF INTERNAL CONTROL SYSTEM IN LARGE FIRMS

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Internal control has attained greatest significance in large-scale business organizations. It is of great assistance to both the management and auditors of such organization because it enables them to carry on the business in an orderly and efficient manner. It safeguard its assets and secure the accuracy and reliability of records. The primary aim of an organization that is profit oriented is to operate the business in the most efficient way. That is to maximize profit at a minimum cost. This can be made possible by establishing strong internal control which acts as regulator of an organization. The internal control can be compared to a persons nervous system. It embraces the entire organization internal control as the nervous system has five component that help it to coordinate the activities of the organization. They are: 1. The control environment 2. Risk assessment 3. The (accounting) information and communication system 4. Control activities and 5. Monitoring. 1. THE CONTROL ENVIRONMENT: The control environment set the tone an organization by influencing the control consciousness of the people.

It may be viewed as the foundation for the other components of internal control. Control environment factors include integrity and ethical values; commitment to competence board of directors or audit committee, managements philosophy and operating style organizational structure; assignment of authority and responsibility to human resource politices and practices. 2. RISK ASSESSMENT: The second component of internal control is risk assessment. Management should carefully identify and analyze the factors that affect the risk that the organizations objectives will not be achieved and then attempt to manage that risk. Managements risk assessment involves consideration of those factors that effects all of the organizations objective. 3. The accounting information and communication system information is needed at all levels of an organization to assist the management in meeting the organizations objective of major concern to the auditors is the accounting information system, and the way in which responsibilities for internal control over financial reporting are communicated throughout the organization.

Accounting information system should include a chart of accounts and a manual of accounting policies and procedure as aids for communicating policies. 4. CONTROL ACTIVITIES Control activities are policies and procedures that help to ensure that management’s directives are carried out. These policies and procedures promote actions and address the risks that face the organization. There are many different types of control activities performed in an organization.5. MONITORING Monitoring is a process that assesses the quality of internal control overtime. It is important to monitor internal control to determine whether any modifications are necessary. Monitoring can be achieved by performing ongoing activities or by separate evaluations ongoing monitoring activities include regularly performed supervisory and management activities such as: continuous monitoring of customers complains or reviewing the reasonableness of management reports. In Nigeria, much emphasis is plaid on account ability and the keeping of accurate records of transportation by those who manage the aairs of all business enterprises