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I Международная научно-практическая конференция «Лингвокогнитология и языковые структуры» (Днепропетровск, 14-15 февраля 2013г.)

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IV Международная научно-практическая конференция молодых ученых и студентов «Стратегия экономического развития стран в условиях глобализации» (Днепропетровск, 15-16 марта 2013г.)

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III Международная научно-практическая конференция "Проблемы формирования новой экономики ХХI века" (23-24 декабря 2010 года)

PhD Ivakhnenkov S.V.

Національний університет “Києво-Могилянська академія”, Україна


Background. Scientists as well as businessmen by the term ‘control’ understand the huge variety of concepts: control as one of the main principles of management, control as the process (cycle) of management and, ultimately, the control function of management. However, despite the common use, the term ‘control’ itself is one of the most poorly defined. One of the most popular meanings of “control” and the related notion of “hierarchy” are frequently used to define a ferocious, authoritarian approach to management [1, p.93].

Purpose of the research. There are many definitions and meanings of control, and each tries to disclose its nature, purpose and objective. The aim is to explore and systemize the control terminology associated with business control and supporting activities.

Basic material. Oxford English Dictionary yields a fairly detailed description to the term “control” [5]. Namely, this word comes from the expression “ the copie of a roll ”, which could most likely serve as an accounting information medium.

Indeed, a numerous amount of nuances and shades of the definition may make ‘control’ quite an enigma until defined more precisely. Two basic understanding of control in economic and business sense are clearly differentiated: 1) control as an ownership and the related receiving of economic benefits, 2)control as a function of management.

On the first aspect of control, even the international financial reporting standards (IFRS – www.ifrs.com) consider control as defining, decisive influence on financial and economic policies of the company to obtain benefits from its activities. This approach, used in the legislation of European countries, treats control as a direct or indirect ownership, providing the largest number of votes in the governing bodies of the company. Of course, one can see that this meaning of control is closely related to the other, because any serious decisions on investment, restructuring, entering new markets and other strategic issues are approved by the dominant (control) group.

Therefore talking about the control concerning business organizations, we can state the following. Control – is a process of testing, measurement, directing, restraint, and feedback provision implemented by certain policies, procedures, practices and structures in order to reach the goal of an organization.

As all management systems function inside the environment that is a source of disturbances and uncertainty, a certain mechanism must exist in order to monitor and respond to these disturbances to achieve the management goals. This mechanism is a control system . To elucidate the concept of this term, let us define what we mean by the word system . Schoderbeck et al. [4] proposes a quite concise general definition as a ‘Set of objects together with relationships between the objects and their attributes related to each other and to their environment so as to form a whole.’ Though this definition could be appropriate to a broad range of subjects such as politics, sociology, economics, biology, engineering etc., the goal of this work directs us only to the management view. Therefore, we can define a control system as a component of a management system comprising of certain policies, procedures, practices and structures which enable managers to measure, test and compare the results of an entity’s functioning to react accurately and timely to any disturbances in order to reach a certain objective.

Regarding the second, managerial understanding of control, the control system can be considered as a black box transformation of inputs into the output by a process where the internal details of the process ignored for simplification. There are four necessary conditions that must be satisfied for any process that could be called consciously controlled: 1)there should be a goal for the controlled process – without objective control has no sense, 2) the output must be measured by the measures that are defined by the goal and objectives, 3) there must be a perfect, ‘ideal’ model of the controlled process, in order to compare the actual process with the desired one, 4)there should be a possibility for the corrective action so that deviation could be eliminated.

However, availability of organizational system components does not automatically mean a process to be controlled. There four necessary conditions must exist for any process to be controlled:

· Objectives/aim/purpose for control;

· The output of the process must be measurable in terms of the dimensions defined by the objectives;

· A predictive model of the process being controlled is required so that causes for the non-attainment of objectives can be determined and proposed corrective actions evaluated;

· There must be a capability of taking action so that deviations of attainment from objectives can be reduced.

Also, there exists some confusion of notions ‘ control ’ and ‘ controls ’, which needs clarification. Totally, we’ve studied more than two dozen English-language sources (books, scientific articles, sites of professional organizations), to find out how to understand the term ‘controls’.

Hayes et al. [9, p.654] define controls as all the organizational activities aimed at having organizational members cooperate to reach the organizational goals. Wilkinson and Cerullo [18, p.32] emphasize on the subsidiary nature of controls for the entity regulation. They enable a system such as a firm to monitor operations and processes, so as to identify and correct deviations from plans. Drucker defines ‘controls’ as the instruments that lead towards the objective of overall ‘control’ [3]. Moreover, ‘control’ is not just a matter of generating ‘controls’, but a process of continual monitoring of the position of the enterprise as a whole.

Conclusions are the following: in spite of the wide use, this term is quite ambiguous. Interestingly, in some guides (even on the information systems auditing), the definition of ‘controls’ is not available at all, e.g. [2], although the term itself is widely used. Then, actually in English the letter ‘s’ in the end of the word often refers to the plural form. But the corresponding term in singular form, namely ‘control’ means something different (see above). That’s why the on-line business dictionary uses a singular term ‘control procedure’ defining ‘controls’ where others use just ‘controls’. Thus, in the article by scientists from the Netherlands and the UK on organizational management [6, p.582] term ‘controls’ are stated as ‘control mechanisms’. It is also quite interesting that the textbook on the International standards on auditing (ISAs), that is published in Britain by authors from the USA and Netherlands differs definitions of ‘controls’ and ‘control procedures’. ‘Controls’ here are the tools of the organizational control, i.e. management control, but ‘control procedures’, surprisingly, is a more general term, which includes procedures that management has established to ensure the achievement of the companies objectives.

Some sources don’t explain the definition of ‘controls’ at all [2], while others tell us about ‘internal controls’. This term is often interpreted as the ‘control activities’, but more frequently as ‘control procedures’. However, in this regard, the authors of the essential American textbook on the internal control assessment state that as the management and reporting system of an enterprise includes policies, procedures, and tools of monitoring compliance, then collectively, the policies and procedures are to be defined as internal controls, because they operate within the enterprise as means of reducing its vulnerability to business, financial and accounting risks [3, p.2].

On the basis of stated definitions, we can infer that control procedures are the specific actions, policies, principles, rules, and guidelines implemented by the entity’s management in order to reach the organization’s short- and long-term goals.

Obviously, at some stage the term ‘controls’ had became wider then just ‘control procedures’ and now covers the whole set of control measures in the business operations (procedures, regulations, and policies of the company, and fragments of the software algorithms, and physical equipment – safes, locks, etc.). Thus, the most appropriate interpretation could be enough general ‘methods and tools of control’.

In our opinion, the main characteristics of the control procedure is its clear formal description, which enables its understanding by the various categories of professionals who play different roles in the control process: 1) precise quantitative characteristics: either true (T) / false (F) or specific number, 2)clearly written description of the sequence of actions, which provides clear understanding of procedure by the person who regulate it, by the person who establishes it, and by the auditor.

Control procedures need to be distinguished from the accounting system. A company needs accounting system, for example, for the shipment of goods to customers and billing, recording of individual transactions, and their summation for recording in the general ledger. Control procedures are added to ensure that the accounting system produces accurate and reliable data. For example, control procedures can be added to the billing system to ensure that all the shipments are billed, and that all bills have correct amounts.

Controls must always be considered in terms of benefits against costs, as well as within the requirements to safeguard the assets. The concept of reasonable assurance demands that the costs of internal controls should not exceed the benefits derived from them. Expected benefits are to reduce losses from the corporate and business risks. Expected costs are related to resources for the establishing and maintaining the control system. The actual calculation of these costs and benefits, however, is largely subjective because of the limited opportunity to measure the specific costs and benefits [6, p.109].

Conclusions. Control is a complex subject because the benefits and costs of controls depend on how people react to those controls, and predicting human behavior is a far from exact science. The study and evaluation of control systems is also complicated by the probabilistic nature of controls.

To achieve its objectives, no matter what type of internal control system is chosen, management has to implement certain control procedures (control activities). Though implementation of controls requires additional financial resources, the benefits it can bring can be considerable. It can prevent the misuse of organization's resources, promote reliable and accurate accounting records, resolve issues arising as a result of reporting errors and protect not only employer’s interests but also interests of employees by segregating worker’s duties and safeguarding them from against being accused of irregularities or misappropriations. In sum, internal control can lead an entity to the needed targets with the minimum losses along the way.

To reach the established objectives the entity has to maintain a favorable control environment, assess its risks timely and correctly, implement the appropriate control activities, supply these issues with a proper information and communication and monitor the control process since the first day of its application. Satisfying these conditions can be the only way to reach a truly efficient and strong control system.

1. Harry, Mike. Business Information: A Systems Approach. – London : Pearson Education limited, 2001. – 420 p.

2. Hunton, James E./ Bryant, Stephanie M. / Bagranoff, Nancy A. Core Concepts of Information Technology Auditing. – John Wiley & Sons Inc. 2004. – 282 p.

3. Johnson, Kenneth P., and Jaenicke, Henry R. Evaluating Internal Control: Concepts, Guidelines, Procedures, Documentation. – New York : John Wiley & Sons, 1980. – 649 p.

4. Schoderbeck, P.P., Schoderbeck, C.G. and Kefalas, A.G. Management Systems. – Homewood , IL : Irwin, 1990. – 458 p.

5. The Oxford English Dictionary. 2nd ed., / prepared by J.A.Simpson and E.S.C.Weiner. – Oxford : Clarendon Press, 1991. – Volumes 1-20. – VOL. III, p . 851–853.

6. Vasarhelyi, Miklos A.; Lin, Thomas W. Advanced Auditing: Fundamentals of EDP and Statistical Auditing Technology. – Addison-Wesley, 1988. – 600p.