Finance-Understanding Internal Control

Question 1

Explain the Finance Organization in the Your GM

Answer 1

Question 2

What are internal controls?

Answer 2

• Procedures and systems
• That ensure the safeguarding of company assets while operations are carried on
• That ensure transactions are adequately recorded.

Question 3

Internal controls are measures to: (5)

Answer 3

1. Deter & detect errors, fraud, and theft
2. Ensure adherence to company policies and procedures
3. Conduct business in orderly & efficient manner
4. Safeguard company assets & resources
5. Produce reliable and timely financial information

Question 4

Mention the application of internal control

Answer 4

• Internal controls from a key part of the foundation of a well-run business.
• Most internal controls are designated and used as timely measures to prevent mistakes from occurring or to correct operational errors.

Question 5

What happens without adequate internal controls?

Answer 5

• Company assets would deteriorate, disappear or be misapplied.
• There is no assurance that company assets are being properly used.
• Company records would be unreliable
• There is no safeguard against miss-accounting or miss-reporting of a company’s financial status.
• Most importantly, there is no structure to provide confidence to the shareholders that their interests are being protected.

Question 6

Why SLB recognizes the necessity for strong internal controls?

Answer 6

• Its size and complexity
• The number of countries operated in
• Our decentralised management style
• High mobility of personnel
• Ever-changing business environment
• Commitment to shareholders and NYSE

Question 7

What is the effectiveness of internal control?

Answer 7

This is measured by utilizing the following two Financial Policies:

FP 24 – Compliance with Business Ethics, Anticorruption and Financial Reporting Requirements

FP 40 – Documentation of Internal Accounting Controls (ICQ – Internal Control Questionnaire)

Question 8

What are the key controls?

Answer 8

Type of Internal Controls

• Segregation of duties
• Proper authorization/ authorization limits
• Adequate documentation
• Physical safeguards
• Clearly defined responsibilities
• Independent checks
• Vacation and rotation of duties

Question 9

What are the limitations of internal controls?

Answer 9

No matter how comprehensive the system of internal accounting controls, there are inherent limitations.

• Errors arise from misunderstanding of instructions, distraction or fatigue.
• Circumvention or collusion will reduce or destroy the effectiveness of control procedures that depend on the segregation of duties.
• Must be flexible to respond to changes in the business.
• Depend on the quality of people; staff sizing goes along with this.
• Control systems generally are not self-correcting. They do not report their own failure.