Home › Finance › Auditing & Accounting › internal control

internal control

in-TER-nul kun-TROHL /ɪnˈtɜːrnəl kənˈtroʊl/

nounC1GRETOEFLIELTS

formalbusiness

A process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

Internal controls are the methods and procedures implemented within an organization to safeguard assets, ensure the accuracy and reliability of financial data, promote operational efficiency, and encourage adherence to policies and laws. They are preventative and detective measures.

The story behind the word. The term 'internal control' is a compound, with 'internal' coming from the Latin 'internus,' meaning 'within,' and 'control' from the Old French 'contre-rolle,' referring to a 'duplicate register' used to check accounts. So, 'internal control' literally means 'checking from within' – a system of checks and balances built right into an organization's operations to keep things on track.

Word relationships

safeguard: A measure taken to protect something or to prevent something undesirable.
check and balance: A system that ensures no single entity has too much power or can act without oversight.

lack of oversight: Absence of monitoring or supervision.
vulnerability: Exposure to harm or risk.

Commonly confused with

external audit: 'Internal controls' are processes within the company to manage risk, whereas an 'external audit' is an independent review of those controls and the financial statements.

Collocations

strong internal controls
weak internal controls
implement internal controls
assess internal controls
internal control system

Example sentences

"Strong internal controls are crucial for preventing fraud, detecting errors, and ensuring the integrity of a company's financial reporting." Importance of internal controls.
"Segregation of duties, regular reconciliations, and password protection for financial systems are all examples of effective internal controls." Examples of internal controls.
"The external auditors not only checked the financial statements but also assessed the effectiveness of the company's internal control system." Auditing internal controls.

Memory hook

INTERNAL CONTROLS are CONTROLS that are INTERNAL to the company to keep things in order. Controls within

When not to use

Don't use 'internal control' for personal self-discipline; it refers specifically to organizational systems and processes.

Fun facts

The Sarbanes-Oxley Act (SOX) of 2002 significantly increased the focus on internal controls for public companies in the U.S. after major accounting scandals.
The COSO framework (Committee of Sponsoring Organizations of the Treadway Commission) is a widely recognized model for designing and evaluating internal controls.

Related words

audit, compliance, verify

Explore more words

assurance, governance, safeguard, data protection, transparency, regulation