What is the main purpose of internal controls?

The main purpose of internal controls is to safeguard assets, ensure the accuracy of financial records, and encourage compliance with laws. This system consists of procedures and practices designed to protect an organization’s resources from theft, fraud, or misuse while maintaining the integrity of its financial reporting.

By implementing internal controls, a company can detect and prevent errors and irregularities in its financial statements, thereby promoting reliable reporting and maintaining stakeholder trust. Moreover, these controls help ensure compliance with relevant regulations and laws, which is essential for the company’s reputation and operational success.

While maximizing profits, facilitating borrowing, and restructuring investment portfolios are important aspects of business operations, they do not encompass the primary objectives of internal controls. These functions are more strategic in nature and not directly tied to the safeguarding and accuracy mandates that internal controls address.