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Banks play a vital role in the economy as they hold the savings of the public, provide a means of payment for goods and services, and finance the development of business (Siddiqui and Podder, 2002). An effective control system is a critical component of bank management and is the foundation for safe and sound operation of banking organizations. A system of strong internal control ensures the achievement of goals and objectives of a banking organization—long-term profitability targets and reliable financial and managerial reporting. It also ensures that the bank complies with the laws and regulations, policies, plans and internal rules and procedures; and decreases the risk of unexpected loss or damage to the bank’s reputation. The increasing demands and the awareness of corporate governance, especially in the banking industry, also aim at higher standards. Over the last decades, several financial crises and also singular company failures led the regulators to focus on this area.
For proper functioning of any organization, one needs to have usable information. The information which has abundant application, especially in banks, is accounting information, which significantly helps in decision making. Management can rely on accounting information when the information is certain and precise, and is reported in accordance with the organizational objectives. A robust internal control structure can make this happen. It enables the management to control the commercial sections correctly. The ability to rely on accounting information will be construed as a component of an internal control system with respect to observing procedures and guidance resulting from the decision making of management (Salehi and Husini,
2011).
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