Internal controls are essential in the manufacturing and distribution industry because they will generally assist in achieving your business objectives. The five components of internal control are:
- Control environment
- Risk assessment
- Information and communication systems
- Control activities
- Monitoring
Application of these components will significantly benefit your business.
Here are the Top 5 reasons internal controls are essential for manufacturers and distributorships:
- Communicate integrity and ethical values. Express the importance of honest business to your employees by setting an example as an owner on how you run an ethical business.
- Financial reporting objectives. Understanding the basic financial reporting standards will help you approve the accuracy of the financial statements to be compliant with accounting standards.
- Active involvement in your business. Continuous involvement as a business owner will assist you in building client relationships, which will increase your revenue.
- Segregate duties. Having checks and balances in place and providing training specific to the duties and responsibilities of your employees is vital to reducing fraud opportunities.
- Examine your business operations regularly. Inspecting the efficiency of your manufacturing process will improve the quality of your product and will increase your cash flow.
For more information about internal controls, call LSL CPAs at (714) 569-1000.
By Rene Carlos
