Geddings P. Barber, Jr. Manager, Houston Office
Presented before the Houston Chapter, Texas Society of Certified Public Accountants -June 1974
Internal control is a concept so basic to the practice of accounting, both from an original accounting standpoint and from the standpoint of the auditor, that by the time the accountant has earned certification he has read or heard most of what he needs to know about the subject. However, because of this very basic nature of internal control, we may too often take what we do and know for granted. For this reason it is worthwhile to stop and reconsider the basics of internal control—what it is, what we do with respect to it and why we do it.
To begin with, let us go to Statement on Auditing Standards No. 1, which, incidentally, is today pretty much the bible for auditing standards. SAS No. 1, section 320 tells us that "Internal control comprises the plan of organization and all of the coordinate measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency and encourage adherence to prescribed managerial policies."
This is a rather broad definition and includes practically everything that an organization does to insure that it functions according to the wishes of its owners—i.e., efficiently and, in the case of a commercial, "for-profit" business, profitably.
SAS No. 1 goes on to point out two types of internal controls: administrative controls and accounting controls. Administrative controls include organization planning, productivity or performance monitoring, sales goals and incentives, personnel and pay policies, budgets, forecasts—all the management tools used to insure the proper, efficient and profitable operations of the business. These controls are important to us because they result in management authorization for the transactions of the business.
The controls with which accountants are most familiar are, of course, the accounting controls. SAS No. 1 says that accounting controls are those designed to safeguard the assets of the enterprise and to insure the reliability