Financial implication of internal control system in an organisation

Thesis Overview

<p> </p><div><p><strong>INTRODUCTION</strong></p><p><strong>1.1 BACKGOUND OF THE STUDY</strong></p><p>When companies suddenly collapse, the often resounding question is, “what went wrong?” A breakdown in the internal control system is the usual cause. Internal control is a process that guides an organization towards achieving its objectives. These objectives include operational efficiency and effectiveness, reliability of financial reporting, and compliance with relevant laws and regulations (COSO 1992). Absence of these variables often results in organizational failure. The findings of the Treadway Commission Report of 1987 in the United States (USA) confirmed absence of, or weak, internal controls as the primary cause of many cases of fraudulent company financial reporting.</p><p>The widespread global corporate accounting scandals that assumes near epidemic proportions in recent years inform this study. Cases of accounting scandals have been recorded International Research Journal of Finance and Economics – Issue 27 (2009) 125 in JCI and Randgold and Exploration companies. In Nigeria, the Managing Director and Chief Financial Officer of Cadbury Nigeria plc were dismissed in 2006 for inflating the profits of the company for some years before the company’s foreign partner acquired controlling interest.</p><p>These scandals emphasize the need to evaluate, scrutinize, and formulate systems of checks and balances to guide corporate executives in decision-making. These executives are legally and morally obliged to produce honest, reliable, accurate and informative corporate financial reports periodically.</p><p>The banking industry is a very important subsector of the financial services of any economy. For effective operation and to be able to render a good stewardship to the operations of a bank, it is imperative that there should be reliable accounting and internal control system. The effectiveness of accounting system of any organization depends on the manner and methods used in the recording of financial transactions, which must be in agreement with the International Accounting Standard,(IAS) regulations.</p></div><h3></h3><br> <br><p></p>