Activity-level controls are often appreciated because they distribute the roles and responsibilities among the workforce. Entity-level controls are usually overlooked. It is a crucial reason why companies lack practical decision-making abilities. Businesses must give due credit and importance to entity-level controls. These will help them acknowledge any company issues efficiently and deal with them optimally. In his article for CPA Hall Talk, Charles Hall shares his views on the significance of entity-level controls and how they bolster your decision-making skills.
Components of Entity-Level Controls that Impact Decision-Making
Understanding Internal Controls
Internal controls often rest with the Committee of Sponsoring Organizations (COSO). The COSO constitutes the following internal control components:
- Control environment
- Risk assessment
- Information and communication
- Control activities
The control environment is entirely subjective regarding its application in different businesses but typically focuses on organizational governance and management. Here is a list of control environment elements that play a crucial role in the overall improvement of decision-making:
- Code of conduct
- Active governance
- Conflict of interest statement
- Whistle-blower Policy
- Internal auditors
- Information technology
- Document controls
Smaller firms often overlook the risk assessment process. Doing so adversely affects them in the long run. However, even some prominent organizations carry out risk assessment procedures but do not monitor them efficiently. Hall shares a list of risk assessments that you should familiarize yourself with:
- Small company risk assessment
- Large company risk assessment
- Financial statement risk assessment
Monitoring and Its Connection with Decision-Making
When you are aware of the status of the policies and projects, it improves your decision-making ability and enhances your control over the effectiveness of the implemented policies.
Information and Communication
One of the major weaknesses of senior leadership is that they do not convey the entity-level controls properly. To communicate effectively, you should use different verbal and written communication processes such as training manuals, flowcharts, and dashboards.
When your internal control system is perfectly aligned with activity-level controls, it makes you more aware of business growth and potential risks. When you are aware of the problems at a deeper level, it automatically increases your decision-making ability.
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