ACCA BT Syllabus C. Business Functions, Regulation and Technology - Responsibilities of Management - Notes ^{3 / 7}

It is management’s responsibility to establish proper internal control arrangements within their company.

This responsibility may derive from statutory requirements or from general corporate governance arrangements.

This requirement is set out more clearly in the Combined Code on Corporate Governance.

Principle C2 of the Code states that: ‘The board should maintain a sound system of internal control to safeguard shareholders’ investment and the company’s assets.’

Provision C2.1 of the Code goes on to explain that the board should, at least annually, conduct a review of the effectiveness of the system of internal controls and should report to shareholders that they have done so.

This review must cover all material controls, including financial, operational and compliance controls and risk management systems.

In its annual assessment of internal control, the board should consider:

• The changes in the nature and extent of significant risks since the last annual assessment.

• The scope of management’s ongoing monitoring of risks, including the reports management has made to the board and any relevant work by internal audit.

• The incidence of any significant control failings or weaknesses that have been identified during the year.

Internal financial control is part of overall internal control.

Although the auditors, for example, will be particularly interested in testing and reporting on the financial controls, the board is responsible for all the controls in the company: financial, operational and compliance controls.