Internal Control

Let’s Analyze

Activity 1. Now that you have understood internal control, I will require you to explain
thoroughly your answers in the questions given below.

1. How is internal control relevant in the success of an organization?

Internal control is a process which is effected by plan management, those

charged with governance, and designed to provide reasonable assurance regarding the
achievement of objectives in the reliability of financial reporting. It is relevant in the
success of an organization because the latter contains the business’ policies of plans,
procedures, organizational design, and physical security. Most importantly, it is
important to establish internal control since establishing such also means establishing
safeguards to the business to ensure the group can adequately meet fiduciary
responsibilities considering errors and fraud can and do occur.

2. Explain management override and how does it affect internal control

implementation?

Management override happens when a well-designed system of internal control

breaks down because management does not do their part in following the policy or
procedure. Management override is also considered the Achilles’ heel of fraud
prevention. Management is primarily responsible for the design, implementation, and
maintenance of internal control; thus, an entity is always exposed to the danger of
management override of controls. When the opportunity to override internal control is
combined with powerful incentives to meet accounting objectives, senior management
may engage in fraudulent financial reporting. As a result, internal control cannot be
relied upon to prevent, detect, or deter fraudulent financial reporting perpetrated by
senior management.

1.