CHAPTER 2
THEORETICAL FOUNDATION
integrity. Whether
a
business
is
big
(i.e.
public
companies)
or
small
(i.e.
sole
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trader), Internal Control (IC) has a great importance in managing the resources
and making sure operations are efficient and effective. It could also maximize the
business potential
and
minimize
the
risk of
fraud,
error,
and
loss.
Hence,
it
is
important to understand the basic concept of IC, its objectives, and the different
types of IC that can be applied by organizations.
2.4.1.Definition of IC
According to Arens, Elder, and Beasley (2003, p. 270), IC can be identified as
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policies
and procedures designed
to
provide
management
with
reasonable
assurance that the company achieves its objectives and goals. Meanwhile,
Romney and Steinbart (2006, p. 783) acknowledge it as controls within a
business organization that ensure information is processed correctly.
Furthermore, CPA Australia (2007, p. 6) recognize IC as methods or procedures
adopted
in
a
business
to
safeguard
its
assets,
ensure
financial
information
is
accurate and reliable, ensure compliance with all financial and operational
requirements, and generally assist in achieving the business’s objectives.
The IC permeates a business’ operating activities and acts an an integral part of
basic management activities, thus it is referred as a process. It implies reasonable,
rather than absolute, assurance, given that complete assurance is extremely
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