The Importance of Internal Accounting Systems

The Importance of Internal Accounting Systems

The internal accounting and control system plays a vital role in the overall function and success of an organization, in some aspects it is the heart of the company. An effective internal accounting system provides management with imperative information on how the company is operating. The main objective of an internal accounting system is to promote sound management practices. Its role is to prevent and detect fraud and the protection of tangible and intangible assets and resources.

The success of an organization is determined by the strategy and decisions management make. Given the current market conditions and the competiveness for market share its necessary the management is equipped with accurate and timely information regarding the performance of the company. The flow of financial information via internal accounting plays a key part of the process. The internal accounting system gives insight to the vigor of the organization with timely information. This information allows the decision makers to review the actual performance with the planned strategy of the company. This information will assist executives with the assessment of risk exposure, errors, variances from plan\budgets and period over period performance. It can also indentify areas of strength and weakness allowing management to make necessary adjustments for the betterment of the company. It also can provide insight begun the numbers by highlighting the quality of operation.

The business ethics and code conducts that are outlined in an organization are extremely important. They are the principle guidelines which the structure of the organization operates. The ethics of a corporation are established to ensure honest, effectiveness, responsibility and transparent and to adhere to compliance and regulation. Because the information provided in the internal accounting system is so important it is equally important that the process and control of gathering information is held at a high standard. Management accounting ethical role should not be jeopardized by misrepresenting the performance of the company. The financial information reported should adhere to all company policies and government compliance and regulations.

The general ethical standards that are expected are to be highly competent, reliable, and objective. Management accountants must not only be well qualified but must also possess a high degree of professional integrity. The responsibilities the professional should only undertake tasks that they can complete with professional competence, and they must carry out their responsibilities with sufficient care and diligence, usually referred to as due professional care or due care (Ethics in Accounting, 2001).

REFERENCES

Ethics in Accounting. Encyclopedia of Business and Finance.