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A. The system of internal control provides assurance to management of the dependability of the accounting data used in decision-making of organizations or companies. IC is a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance of the achievement of objectives in the following categories :
Effectiveness and efficiency of operations, Reliability of financial reporting, Compliance with applicable laws and regulations".
These will indicates :
- Effective internal control will have a significant effect on proper use of organization funds and assets.
- Weak internal control system will have a significant effect on fraud perpetration and loss of revenue in an organization.
- Effective internal controls will have a significant effect on financial statement preparation and presentation by organizations.
- Internal control activities will have a significant effect on proper keeping of records in organizations.
- effective internal audit systems will have significant effect on keeping to organizational financial budgets.Â
The financial management of any organization can be measured by the standard or the effectiveness of the internal control system and as well as the policies implemented by the management.
A well-managed business entity will not only attract interest of outsiders such as investors and others, but will also retain the zeal of the existing owners and users of the International Journal of Economics, Commerce and Management, United Kingdom Licensed under Creative Common Page 129 financial information. Therefore, it will be said that the financial management of any organization can't work without internal control as true and fair presentation of financial statement may never be possible if the board and senior management are not committed to providing a well-planned internal control system. All these works assert that proper and efficient internal control and internal audit system ensures sound financial management in organsiations. So, if the company has been audited, automatic internal controls that initially good enough will potentially lead to improvements for the survival of the company.
Because in the audit program, it aims to collect the audit evidences that will serve as the basis for giving opinions or conclusions on the weakness / absence of internal control through a series of compliance tests. Between the compliance and substantive test, there is an important thing that used to inform the management about it. It called Management Letter, it contains any weakness of IC and its improvement suggestions. Then, there will be improvement actions for the future.
B. Management Letter
A management letter is an auditor's letter that addressed to the client and written by company management that confirms the accuracy of an audit. An audit is an examination and verification procedures of a company's financial and accounting records and supporting documents/evidences presented by a professional, such as a certified public accountant.
At the completion of the audit program the auditors provide Management letter which contain relevant information about accounting and management issues in the entity. The review of these letter will help the management to strengthen its internal control as it contains identified deficiencies in the system in general, mainly the avenues of inappropriate access to information that it to be handled in a restricted way. The recommendations provide helpful insight over many issues. Management Letter will be submit to the client after compliance before substantive in order to give more time for management to improve it.
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