Vareto Finance Glossary

Internal Controls


Internal controls are activities that a company performs over its normal operations with the objective to minimize errors, safeguard assets and ensure the smooth flow of operations as per regulations where applicable. Internal controls are crucial for businesses to mitigate any risk arising from a company's day-to-day operations. These also help in ensuring consistency in maintaining reliable financial records.


There are three broad classifications of internal controls:a. Preventative: used to prevent any suspected irregularity b. Detective: measure to identify possible loopholesc. Corrective: actions to rectify identified shortcomings that may cause financial or reputational damage

Why it matters

Internal controls are crucial for any company as:a. They ensure that all transactions are accounted for.b. They prevent any financial losses or damage. c. They set certain standards to be followed by everyone in the organization. d. They ensure compliance with laws and regulations.