Managements incentives for establishing and maintaining strong internal control

heeds motivators for establishing and maintaining cockeyed ingrained bind25. dispute circumspections incentives for establishing and maintaining noticeable congenital control.Before we start answer this question, let us understand what the definition of internal control is. Internal control is knowing and implemented by an entitys management, those charge with governance of the entity, and different personnel to pass on reasonable assurance regarding the reach outment of objectives. In addition, internal control is in like manner skunk be refer to a process wherein the structure of the organization, the breeding transcription and authority are designed in such a way that it muckle helps the organization contact its objectives and goals. (Bhattacharyya, August 2010) Internal control plays an all important(predicate) role in how management meets its stewardship or agency responsibilities. For example, internal control for a affirm is the systems, policies, procedur es, and processes effected by the board of directors, management, and other personnel to safeguard bank assets, limit or control happens, and achieve a banks objectives (Internal Control Comptrollers Handbook January 2001). A system of upstanding internal control is the backb unmatched of an associations management program. Strong internal control may helps a companionship to meet their objectives and goals, and to maintain a healthy, successful operations.For a bank, Good internal control coffin nail help a bank to keep off surprises and achieve its objectives.After we understand the internal control, let us see the managements incentives for establishing and maintaining loaded internal control. There are few management incentives such as provide safeguard of assets and company records, goodness and efficiency of operations, hold openion and detection of hypocrite and error, compliance with applicable constabulary and regulation, avoid wastage of resources, happen man agement systems are in force(p) and lessen take a chance of injury to the associations reputation.First, the managements incentive for establishing and maintaining strong internal control is to see to it company records and assets can be straightlacedly safeguard. A strong internal control can ensure that asset was non been stolen and certificates or company records are proper keeping. Then, a proper safeguard of company records and assets can generate veritable instruction for the company because the records will non easily be manipulated. Besides, Management also needs reliable selective culture to ensure the fairness of pecuniary report. It can reduce the difficulty between the principal and agent. So, what is mean by principal and agent? Actu totallyy, principal is referring to absentee owner such as stockholder and agent refers to manger who is working in company. The problem is information instability and conflicts of interest are occurring between themselves. T his is because jitney has more information roughly true financial position than shareholder. Moreover, they are different objectives in sometimes, so it will lead to conflict of interest. For example, the goal of shareholder is to obtain high dividend from the company which they invest. However, the goal of manager is to level best the profit of the company. Therefore, they will be a conflict such as whether using the excess earning to maximum the dividend for each of the shareholder or increase their market share by increases the advertising. It will lead to the problem between shareholder and manager, because the shareholder did non know whether the manager has d adept a correct or win-win decision. Then, they did not know the financial statement have incurred error or fraud or not. However, a strong internal control may ensure a safeguard of companys records and assets and it will increase the trustiness to the company. Then, decrease the problem between agent and principal s. Besides this, reliable information is important to begin a good decision to a company. If the information system does not provide reliable information, management may be unable to cook quick and informed decisions such as product pricing, profit information and cost of production. It is important that the top management is generated with truth information, as they entrust on these data to make important and critical decisions. Therefore, a strong internal control is demand in order to make financial information transparent and additionible to the managers or decision makers.Second, the managements incentive for establishing and maintaining strong internal control is to have an durability and efficiency of operations in a company. Effective of internal controls can be sure that all duties are world completed according to standards, rules and all quotas are being met. However, efficiency of internal control is very important to the achievement of sustainable competitive adv antage and the maximization of profitability. Operational procedures, best-practice and performance polishs are effective internal controls of efficiency. (Ingram, eHow Contributing Writer) A strong internal control increases the effectiveness and efficiency of operations, reduces the risk of asset loss, and helps to ensure compliance with laws and regulations.Third, the managements incentive for establishing and maintaining strong internal control is to prevent and detect of fraud and error in company. Error is un designed misstatements make by staff or manager such as do mistakes in gathering or touch financial data used to rig financial statements. Then, fraud is intentional misstatements make by staff or manager such as manipulation, falsification, or alteration of distinguishing records or supporting documents used to prepare financial statements. Therefore, a strong internal control can prevent and detect the error and fraud. For example, segregation duty between record shipping inventory and calculate inventory physically can prevent thievery or stolen of inventory occur. Besides, a proper freshlys report information system can prevent the error or fraud, such as gross sales clerk only can access and key in the information about the sales and account receivables only. Therefore, the sales clerk cant access to cash account in order to create a assumed customer. Moreover, monthly bank reconciliation can check the mathematical accuracy of the bank reconciliation working paper and agree the balance per the books to public ledger to detect the error or fraud in account bank.Next, the managements incentive for establishing and maintaining strong internal control is to compliance with applicable law and regulation. Following law and regulation set by government affect huge investment fundss, especially that of time. Therefore, a strong internal control is necessary in order to avoiding legal consequences by follow the rule and regulation. That mean , it can reduces or avoid the costs which may have to occur if the company dont follow rules.Then, the managements incentive for establishing and maintaining strong internal control is to avoid wastage of resources. A strong internal control can helps company avoiding wastage of precious resources, in any event increasing efficiency. It is because maximize the profits or income by utilization the resources is one of the method of efficiency. Strong internal controls can avoiding wastage of resources like an effective accounting information system can ensure the reliability and appropriate of the information for avoid to making an inefficiency and inaccurate decision and impecunious asset of the company in investment in that decision such as wasted cash or establish a useless debt for an ineffective investment.The managements incentive for establishing and maintaining strong internal control is to making risk management systems effective. An entitys risk assessment process is its pr ocess of identifying, evaluating, and responding to the identified business risk. For example, mobile think company such as Nokia always facing business risk not because of its competitive environment only but rapid changing technology is also a main reason. To suit for the customer leaning and favourite, Nokia facing business risks that are always need to make investment in Research and Development Department to design a new model and rapid upgrade their product. However, not all the mobile telecommunicate discover by Nokia will be the favourite of the customer and making a profit, so a strong internal control is important to assess the business risk and reduce the business risk to an unobjectionable level.The last managements incentive for establishing and maintaining strong internal control is decreased risk of damage to the associations reputation. It is because a strong internal control can produce a reliable financial statement, making operating procedures more effective and efficiency, prevent and detect the error or fraud and compliance with applicable laws and regulations. Therefore, the financial report will be more credibility and decreased risk of damage to the associations reputation.Last but not least, after we review the managements incentive for establishing and maintaining strong internal control, we can conclude that a strong internal control is very important to every company to achieve their businesss goal, such as provide a safeguard of records and assets or making an effectiveness and efficiency of operations. Therefore, a strong internal control is one of the factors that ensure the company may successful also.