Internal controls are extremely important because they provide a level of assurance that the financial statements have not been misstated to outside users. Many people believe that the implementation of internal controls is only beneficial to those outside the firm. However, if implemented correctly, internal controls can provide the internal benefit of increased operational efficiency to small firms.
Internal controls can be defined as the atmosphere, policies, and procedures a firm requires or creates in order to mitigate the risks of fraud or error. The implementation of these policies and ethical cultures can increase operational efficiency in two main areas: