Internal Control System (ICS)

An internal control system includes systematically designed technical and organizational measures and controls to comply with guidelines within a company.

Internal Control System

The internal control system is intended to ensure the proper flow of business activities, their effectiveness, and their efficiency. The controls carried out within the framework of the ICS are intended not only to minimize the probability of errors in the work process but also to detect errors that have already occurred. The ICS pursues various objectives; the three most important are ensuring the effectiveness and efficiency (operations), the reliability of financial reporting (financial reporting), and compliance with laws and standards (compliance).

The board of directors of a joint-stock company has the responsibility to establish and operate an internal control system and regularly checks the effectiveness of the ICS. The implementation of the internal control system is carried out by the executive management, who regularly informs the board of directors about the effectiveness of the ICS.

The obligation to maintain an internal control system is still relatively new; it only arose in the context of the revision of the Code of Obligations. This was due to numerous financial scandals in the USA where public trust in accounting and its benefits had been compromised. Under current Swiss Code of Obligations law, the audit firm must examine whether an internal control system is in place (Art. 728a OR). The findings must be recorded by the audit firm in its report to the board of directors. However, there is a limitation that not every company must have an internal control system, but only those companies that are subject to ordinary auditing.