Limitations of the IC System

‭Limitations of the IC system; the concept of reasonable certainty‬ ‭The IC system, no matter how well organized, can never guarantee that all objectives,‬ ‭plans and assignments will be realized in accordance with all predetermined expectations‬ ‭and standards. It must be established in advance that certain developments and‬ ‭conditions simply fall outside the control of management. The study report devotes a‬ ‭discussion to the factors that further explain this statement. They are determined on the‬ ‭one hand by the economic motive (cost-revenue ratio) and on the other hand by human‬ ‭action (conscious or unconscious), which simply imposes limitations on the operation of‬ ‭the system.‬ ‭The threefold division operations-financial reporting-compliance‬ ‭ he study distinguishes three categories (target areas):‬ T ‭-‬ ‭The business operations - the IC system is mainly related to the‬ ‭effective and efficient use of production resources;‬ ‭-‬ ‭Financial reporting - internal control focuses primarily on the creation of‬ ‭reliable financial reporting to be published; and finally;‬ ‭-‬ ‭Compliance with legal rules (compliance) – the company must comply with‬ ‭relevant laws and regulations.‬ ‭ he Coso study sees internal control as an explicit responsibility of management and‬ T ‭an inseparable part of the management process. All IC activities are also placed in this‬ ‭context. However, this does not mean that all management activities are also IC‬ ‭activities by definition.‬ ‭ he five components of internal control‬ T ‭Committee of Sponsoring Organizations of the Treadway Commission (Coso),‬ ‭whose aim is to further define internal control and to arrive at a framework for‬ ‭testing internal control systems. The five components of internal control used here‬ ‭c ome from the Coso report, namely:‬ ‭-‬ ‭Control environment; Risk‬ ‭-‬ ‭assessment; IC procedures (control‬ ‭-‬ ‭activities);‬ ‭-‬ ‭Information and communication; Ensure proper‬ ‭-‬ ‭functioning (monitoring).‬ ‭ he components are derived from the way in which management leads the‬ T ‭c ompany, and they are integrated within the management process. The division of‬ ‭the five components into sub-components is taken from the Canadian CoCo‬ ‭report.‬ ‭ he components of Coso can also be found in the NIvRA assessment instrument:‬ T ‭E Control framework‬ ‭Control environment:‬‭Risk‬ ‭A Risk assessment‬ ‭assessment: Control activities:‬ I‭nformation and communication:‬ ‭Monitoring:‬ ‭ Control‬ B ‭measures C‬ ‭Information &‬ ‭Communication‬ ‭D Monitoring‬ ‭A Risk assessment‬ ‭ ow‬‭does‬‭the‬‭organization‬‭deal‬‭with‬‭the‬‭internal‬‭and‬‭external‬‭risks‬‭that‬‭affect‬‭the‬‭realization‬ H ‭of the get in the way of organizational objectives?‬ ‭ or‬ ‭an‬ ‭effective‬ ‭risk‬ ‭assessment,‬ ‭it‬ ‭is‬ ‭first‬ ‭necessary‬ ‭that‬ ‭the‬ ‭organizational‬ F ‭objectives for‬ ‭processes‬ ‭and‬ ‭activities‬ ‭are‬ ‭determined‬ ‭at‬‭various‬‭levels‬‭in‬‭the‬‭organization‬‭and‬ ‭in‬ ‭mutual‬ ‭c oherence.‬ ‭The‬ ‭risk‬ ‭assessment‬ ‭c onsists‬ ‭of‬ ‭identifying‬ ‭and‬ ‭analyzing‬ ‭those risks that could hinder the achievement of these objectives.‬ ‭Part components:‬ ‭-‬ ‭Corporate objectives; External‬ ‭-‬ ‭and internal environment;‬ -‭ ‬ C ‭ ritical success factors and performance indicators;‬ ‭-‬ ‭Risk analysis.‬ ‭ Control measures‬ B ‭How does the organization ensure that what needs to be done is actually carried‬ ‭out? The control measures component is aimed at ensuring that management‬ ‭guidelines are implemented. The control measures also help ensure that the‬ ‭necessary action is taken when risks occur that pose a threat to the achievement‬ ‭of the company's objectives.‬ ‭Part components:‬ -‭ ‬ I‭nternal controls;‬ ‭-‬ ‭Procedures;‬ ‭-‬ ‭Coordination mechanisms.‬ ‭C Information and communication‬ ‭ ow does the organization guarantee that the information needed to properly carry out‬ H ‭work is available and used by the right people?‬ ‭Company employees can only perform their tasks efficiently when the necessary‬ ‭and relevant information has been identified, recorded and communicated in a‬ ‭c ertain manner and at a certain frequency. Communication must therefore take‬ ‭place effectively within the entire company. And employees must be empowered to‬ ‭c ommunicate important information to management.‬ ‭Part components:‬ -‭ ‬ ‭-‬ ‭-‬ ‭-‬ ‭Communication;‬ ‭Information needs;‬ ‭ chedule;‬ S ‭Information provision and information systems.‬ ‭D Surveillance‬ ‭ ow does the organization ensure that the work processes lead to the desired effectiveness‬ H ‭and efficiency?‬ ‭ ontrol and supervision. Deficiencies in this component of internal control must be‬ C ‭reported to managers and, in serious cases, to top management or the board.‬ ‭Part components:‬ -‭ ‬ ‭P erformance level;‬ ‭-‬ A ‭ ssumptions and principles;‬ ‭-‬ ‭Follow up procedures;‬ ‭-‬ ‭Effectiveness measurement.‬