What is the difference between internal control and internal control system?

What is Internal Audit?

This is an unbiased, independent, objective assurance and a consulting activity strategically developed by the management to improve a company’s activity. It gives a disciplined and systematic approach to improve risk control, management, and governance processes and is carried out by an audit unit headed by the internal auditor who reports to the audit committee.

An internal audit is important in;

• Reporting on the authenticity and accuracy of accounting records
• Ensuring accounting standards comply
• Detecting and preventing fraud
• Verifying business liabilities incurred
• Identifying  gaps in the operations and recommending solutions
• Assisting in the development of periodical action plans

For internal audits to be effective, the audit process includes:

1. Audit planning
2. Conducting audits
3. Improvement actions

What is Internal control?

This is a process designed by a company’s stakeholders aimed at providing reasonable assurance on the reporting, operations, and compliance of an organization.  It includes the organizational structure, strategic plan, job structure, job descriptions, appraisal systems, employee guide, and reporting systems, among others.

Internal control aims at:

• Effecting efficiency and effectiveness of operations
• Protection of assets
• Ensuring set laws are adhered to
• Detection and prevention of fraud

Internal control has 5 components, namely:

1. Monitoring
2. Control activities
3. Risk Assessment
4. Control environment
5. Information and communication

Although these elements are interconnected to each other, their implementations vary from firm to firm, based on the set structures. Internal control, however, needs regular review to identify weak areas and give recommendations. This can be done with the use of a checklist, flowcharts, questionnaires and narrative records.

Similarities between Internal Audit and Internal Control

• Both are control organizational control measures for optimal operations

Differences between Internal Audit and Internal Control

Definition

Internal audit refers to an unbiased, independent, objective assurance and a consulting activity strategically developed by the management to improve a company’s activity. On the other hand, internal control refers to a process designed by a company’s stakeholders aimed at providing reasonable assurance on the reporting, operations, and compliance of an organization.

Objectives

An internal audit aims at reporting on the authenticity and accuracy of accounting records, ensuring accounting standards are complied, detecting and preventing fraud, verifying business liabilities incurred, identifying gaps in the operations, recommending solutions and assisting in the development of periodical action plans. On the other hand, internal control aims at effecting efficiency and effectiveness of operations, protection of assets, ensuring set laws are adhered to and detecting and preventing fraud.

Classification

While an internal audit is classified as an activity, internal control is classified as a system.

Work verification

While a person’s work is verified by another person in an internal audit, every component of work is verified in internal control.

Nature

While an internal audit is a preventive activity, internal control is a detective activity.

Internal Audit vs. Internal Control: Comparison Table

Summary of Internal Audit vs. Internal Control

Internal audit refers to an unbiased, independent, objective assurance and a consulting activity strategically developed by the management to improve a company’s activity while internal control refers to a process designed by a company’s stakeholders aimed at providing reasonable assurance on the reporting, operations, and compliance of an organization. While the two have differences, both ensure that a company’s goals are achieved by mitigating risks through effective controls.

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