Corporate Compliance

Introduction

Senior executives have long sought ways to better control the enterprises they run. Internal controls are put in place to keep the company on course toward profitability goals and achievement of its mission, and to minimize surprises along the way. Corporate governance has become a top priority for boards of directors, management, auditors, and stakeholders. How can Enterprise Risk Management (ERM) be integrated with internal controls and corporate governance to effectively minimize risk for an organization?

Internal Controls

Internal control is broadly defined as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

• Effectiveness and efficiency of operations.

• Reliability of financial reporting.

• Compliance with applicable laws and regulations

Because internal control serves many important purposes, there are increasing calls for better internal control systems and report cards on them. Internal control is looked upon more and more as a solution to a variety of potential problems.

Internal control is, to some degree, the responsibility of everyone in an organization and therefore should be an explicit or implicit part of everyone's job description. Virtually all employees produce information used in the internal control system or take other actions needed to effect control. Also, all personnel should be responsible for communicating upward problems in operations, noncompliance with the code of conduct, or other policy violations or illegal actions (http://www.coso.org/publications/executive_summary_integrated_framework.htm.).

Balance sheet account reconciliations are one of the oldest and most important accounting processes. Yet, in many companies they're underappreciated as an internal control over financial reporting. Before Sarbanes- Oxley many companies relegated this control to a corrective role; since the control operates after the financial reports are issued, it is effective only in identifying misstatements for correction.

Some companies are not capable of completing the necessary reconciliations in time to use them as a preventative control. They should risk-rate all accounts and reconcile high- and medium-risk accounts in time to incorporate general ledger adjustments into the company’s earnings release. Reconciling all accounts that could contain a significant or material misstatement and posting the necessary adjustments to the general ledger will reduce the risk of material misstatement. Because account reconciliations are so important under Sarbanes-Oxley, adopting a continuous improvement process with a goal of reconciling all accounts before the post-closing adjustment review process will enhance the internal controls of the organization.

Corporate Governance

It was not that long ago that a seat on a corporate board was considered a plum assignment.