Control environment definition

What is the Control Environment?

The control environment is the comprehensive set of actions taken by management that set the tone for how employees engage in their day-to-day activities. The control environment is comprised of the following:

  • All policies and procedures. A well-defined set of policies and procedures informs employees about what they are supposed to do in specific situations.

  • The actions taken by management to deal with issues. The decisions made by managers are closely observed by employees, who are likely to copy these actions when they deal with similar issues.

  • The values that management espouses. A strong commitment to values tends to ripple down through the organization, resulting in a higher level of overall support for a system of controls.

Taken as a whole, the control environment shows the level of support that management has for the system of internal controls. A strong control environment is needed to reduce the number and severity of control failures within an organization.

Related AccountingTools Course

Accounting Controls Guidebook