Conclusions and Future Research

Abstract

Purpose: The aim of this chapter is to make concluding observations based on what we have discussed in other previous chapters as well as to describe future research opportunities within the area of internal control.

Synopsis: Internal control seems to be an all-encompassing process. The wider approaches to internal control have expanded its boundaries significantly, far beyond the financial reports and the duties of the accountant. Financial reporting quality objectives have been supplemented with other internal control objectives which are related to compliance, efficiency and effectiveness. Today internal controls may be dispersed and embedded in most of the company’s business activities. Furthermore, internal control has transformed into an extension of risk management and thus tied closer to the strategy formulation and execution process. Internal control is considered to be a form of risk treatment through which inherent risk may be increased or decreased through the design and application of controls. Furthermore, it is today a regulatory object. Lawmakers and supervisory authorities are increasingly concerned with the design and operating effectiveness of internal controls. Disclosure requirements imposed on firms are forcing them to provide public disclosures about their internal control systems, which were previously private to firms. Today internal control is also considered to be a key corporate governance mechanism and corporate governance rating systems and credit rating agencies increasingly take into account the internal control and risk management practices of firms. Some researchers however have pointed out that there is still much to learn about internal control quality, and how internal control is associated with corporate governance quality. The fact that internal control is an inherently complex concept poses a significant research barrier, and while all research methods are valid, it is unlikely that archival studies or experiments are able to capture measures of internal control quality. Finally, practical, regulatory and academic texts suggest that internal control designs are contingent upon certain variables. These variables include company objectives, strategy, regulatory characteristics, risk and risk appetite, management attitudes and firm size. Prior research also points to the challenge facing any internal control architect. Building internal control capabilities would seem to be of great importance if firms are to be able to design internal controls which are balanced, integrated, dynamic and cost-effective.