Control Objectives

What Are Control Objectives?

Control objectives are parameters or objects of assessment that lay out the risks of a process and the related activities. It assigns, regulates, and evaluates resources to check whether they are strong enough to accomplish the organization's goals and mission. In other words, they set out the performance standards.

These objectives for control are tailored to the business requirements; they are the ones that suit them best. This is done to squeeze out the maximum benefits from the laid-out framework that keeps activities in check. These objects give directions and rules to adhere to, which saves time. They, thus, ensure productivity and compliance.

• Control objectives are goals that set out performance standards to ensure the productivity, efficiency, and profitability of a process or operation.
• Companies may also segregate their controls into budgetary control objectives, internal control objectives, inventory control objectives, and quality control objectives.
• Control objectives can be classified as compliance, financial reporting, strategy, operations, or miscellaneous. Companies may also segregate their controls into budgetary control objectives, internal control objectives, inventory control objectives, and quality control objectives.
• Each control goal is typically linked to a single risk. It may, however, come with more than one risk. These controls and risk assessments help maintain profitability in a world where everything is constantly evolving.

Control Objectives Explained 

Control objectives provide a framework to evaluate the effectiveness of control. Their primary role is to address the risks they are created to control. It is the process of continuously allocating, assessing, and regulating resources. Managers must be aware of the expected performance levels to give their best. They should also know how to communicate them to staff members to manage an organization effectively. Therefore, these objectives are the steps a manager takes to ensure that actual performance complies with the organization's plan. It can be anything that governs an organization's process or activity.

These objectives shall align with the products or services offered to the consumers and the associated risks. They also need to be incorporated into every control activity initiated. One can define the risks associated with a control objective after the determination of the objective. Each control goal typically finds a link to a single risk. It may, however, come with more than one risk.

These objectives offer the crucial knowledge required to define a precise policy and effective practices for the organization to follow. Thus, these controls and risk assessments help maintain profitability in a world where everything is constantly evolving.

Types 

Control objectives can be classified as compliance, financial reporting, strategy, operations, and miscellaneous.

#1 - Compliance

Controls are put in place to ensure compliance. Compliance with policies, accounting standards, legal requirements, etc., comes under this. They act as a boundary within which the company can perform its operations.

#2 - Financial Reporting

Accounting ethics aid in setting goals and expectations. Accounting practices and approaches will vary depending on the type of organization. Generally Accepted Accounting Principles (GAAP) are the norm in the United States. International Financial Reporting Standards (IFRS) are favored in other places.

#3 - Strategic Controls 

Strategic control is a method of managing the execution of the company's strategic plan. It is designed to manage ambiguity and unknowns while tracking the execution of a strategy and its results.

#4 - Operations Control

Security measures known as operational controls are mainly implemented and carried out by people. These measures increase the protection of a specific system (or group of systems). They frequently depend on management actions in addition to technical controls and frequently call for technical or specialized knowledge.

#5 - Miscellaneous Controls 

The areas that are not mainstream need control too. Such categories come under this category. Companies may also segregate their controls into budgetary control objectives, internal control objectives, inventory control objectives, and quality control objectives.

Examples 

Let us check out these examples for a better idea:

Example #1

Let us take the example of a small accounting firm. The firm may have various control objectives.

Some of the possible controls in the preparation of financial statements are as follows:

• Adherence to updated local and international accounting standards (wherever necessary).
• Balances that reflect accurate and appropriately classified assets, liabilities, and equity interest balances.
• Balances that reflect all unrecorded assets, liabilities, and equity interest balances.
• Disclosure of accurate balances for assets, liabilities, and equity interests.
• Following the company’s ethical standards while recording and evaluating the balances. There are several risks associated with this, such as wrongly interpreting or incorrectly recording the data. The direct way to control risk is to ensure the balances are correct and up-to-date.

Example #2

Let's take the example of a company's HR department. Suppose the HR department establishes a control goal titled Personnel. The following are the results of controls by the company:

• Enrollments should be fully authorized and processed promptly.
• They should be authorized and processed in a thorough, precise, and timely manner whenever there are changes to indicative data.
• The authorized sites should be used to obtain payroll information.
• There should be thorough background checks.
• The employees must receive knowledge of the policies and ethical practices of the company.
• The system should be completely, accurately, and quickly configured to meet client requirements after being duly authorized.
• There should be authorization, correct setup, and timely payment of payroll taxes and other deductions.
• As necessary, there should be full. correct and prompt updates of the tables for payroll tax and other deductions.

If the employees participate in business transactions that counter the organization's goals, it isn't good for the company. It is against ethical and equitable trading, which is a risk related to the objective of control. The above controls, especially equipping the employees with company policies, can be a good step in preventing such situations.

Control Objectives vs Control Activities

Here are the main differences between the control objectives and activities:

Key Points	Control Objectives	Control Activities
Concept	Control objectives are techniques or objects of assessment that lay out the risks of a process and the related activities.	The policies, practices, techniques, and mechanisms known as control activities work to ensure management's reaction to reducing risks. These risks are discovered during the risk assessment process. Alternatively, put, control activities are steps done to reduce risk.
Nature	They are mostly preventive. The goal of preventive measures is to stop unwanted events from happening. Creating these controls entails foreseeing possible issues before they arise and implementing preventative measures.	They can be either preventive or detective by nature. It is a detective activity intended to reveal any unpleasant events that take place and inform management of what has occurred. As a result, management can move quickly to correct the situation. They can include a variety of manual and automated tasks like business performance reviews, authorizations and approvals, validations, and reconciliations.
Aim	They are concerned with the end goal.	It is more concerned with the procedure than the goal itself.

Frequently Asked Questions (FAQs)

Recommended Articles

This has been a guide to what are Control Objectives. We explain the topic in detail, including its examples, comparison with control activities, and types. You can learn more about it from the following articles –

• Capital Controls
• Risk Control
• Change of Control