Internal Control Objectives
Kyle Ashcraft, CPA · 2019 CPA Exam Scores · 95 FAR · 98 BEC · 91 REG · 90 AUD
Internal controls come in many forms, which makes them hard to pin down with a narrow definition. The easiest way in is through what they're actually for: every internal control exists to help a company hit one of three kinds of objectives.
An internal control is any system that helps a company achieve its operations, reporting, or compliance objectives. Keep that definition broad — it's meant to cover everything from a bank reconciliation to a security badge system.
What are operations objectives?
Operations objectives cover the effectiveness and efficiency of a company's operations. This is a wide net: hitting financial performance goals, making good use of assets, and protecting the company against theft all fall under operations objectives.
What are reporting objectives?
Reporting objectives cover the reports a company produces, both internal and external. A company's financial statements are the classic example of an external report — they need to comply with U.S. GAAP. Good reporting objectives mean the reports actually and accurately reflect how the company is performing.
What are compliance objectives?
Compliance objectives cover adherence to applicable laws and regulations, which are often industry-specific — a healthcare company's patient privacy rules are one example. Meeting compliance objectives means verifying the relevant rules are actually being followed, not just that policies exist on paper.
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Kyle Ashcraft, CPA scored 90 or above on every section of the CPA exam in 2019, including a 90 on AUD. He is the founder and sole instructor of Maxwell CPA Review, a complete CPA review course covering all six sections, where he creates every lecture, textbook and study outline himself.
Finally, there are the compliance objectives. This area focuses on adherence to appropriate laws and regulations, which are typically industry-specific. For instance, a healthcare company has specific patient privacy laws to abide by. Understanding compliance involves verifying whether rules are being followed.