Corporate Compliance Report
Internal control means different things to different people. This causes confusion among businesspeople, legislators, regulators and others. Resulting miscommunication and different expectations cause problems within an enterprise. Problems are compounded when the term, if not clearly defined, is written into law, regulation or rule. (COSO, 2006) Internal control over financial reporting has always been a major area in the governance of an organization, and this importance has been magnified in recent years. This tool is intended to give audit committees basic information about internal control to understand what it is, what it is not, how it can be used most effectively in the organization, and the requirements of management with respect to the system of internal control over financial reporting. (AICPA, 2006)
UTC delivers a premium internal audit service that enables its business segments to achieve superior performance. UTC seeks effective risk management, identify opportunities for enhanced efficiencies, foster compliance and facilitate constructive change. The aim of corporate governance at UTC is an ethical culture in which 100 % compliance with laws and regulations is the standard. UTC's internal audit teams conduct risk-based audits and recommend strategic solutions to the UTC business units. These controls are designed to provide reasonable assurance that the Corporation’s assets are safeguarded, that transactions are executed in accordance with management’s authorizations and that the financial records are reliable for the purpose of preparing financial statements. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Tread way Commission in Internal Control — Integrated Framework. Management concluded that based on its assessment, UTC’s internal control over financial reporting was effective as of December 31, 2006. (2006, UTC)
Internal control consists of five interrelated components. These are derived from the way management runs a business and are integrated with the management process. The components are:
• Control Environment -The control environment sets the tone of an organization, influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure. (COSO, 2006)
• Risk Assessment - Risk assessment is the identification and analysis of relevant risks to achievement of the objectives, forming a basis for determining how the risks should be managed. (COSO, 2006)
• Control Activities - Control activities are the policies and procedures that help ensure management directives are carried out. They help ensure that necessary actions are taken to address risks to achievement of the entity's objectives.
Implementing strategies to create an effective internal control environment is needed to prevent and detect controls of fraud (Murphy, 2015). Control is needed to combat fraud, enforcing employees and volunteers to do the right thing. Management must have control of the organizations operations to tackle risks when they arise (Arshad et al, 2015). According to Arshad et al (2015):
Even though internal controls do not always work, every entity that has workers should have internal controls. Internal controls protect entities from dishonest workers. Internal controls are a series of checks and balances. The Sarbanes-Oxley Act of 2002 was needed to gain control of accounting improprieties. Dishonest accounting has cost company employees millions of dollars in retirement funds. It has also cost investors millions of dollars.
According to PCAOB Auditing Standard 5 paragraph 2, “effective internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes. If one or more material weaknesses exist, the company 's internal control over financial reporting cannot be considered
What is internal control? According to University of Phoenix, Axia College Internal Control and Cash (2009), internal control is all of the related methods and measures adopted within an organization to safeguard its assets and enhance the accuracy and reliability of its accounting records. The primary reasons for internal control are help companies protect their investments and merchandise against theft from everyone, including employees and to make sure that the accounting is done correctly and truthfully.
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit
This section was included to reduce potential for fraud in publicly traded companies by adding more strict procedures and requirements for financial reporting. Management was responsible to create or enhance their internal controls and follow-up with a report assessing the effectiveness of the control structure. For many companies, this section was the most complicated and most expensive to implement because it also required management to report on the shortcomings of the controls. These reports also needed to be checked for accuracy by an external, registered auditor to confirm the operation and effectiveness of the
Internal controls are a big factor in a company’s growth and value. Proper accounting practices are a big part of this process. Following the scandal caused by the unethical practices used by companies such as Enron, Tyco, Global Crossing and Worldcom, the Sarbanes-Oxley Act of 2002 was enacted. This act held companies accountable for their actions. Companies could either face fines, imprisonment or both if the act was not followed. Also, if there are deficiencies in a company’s internal control, stock prices can plummet. There are many physical, mechanical and electronic controls involved in internal controls. Some of these are good controls while others, even though helpful, are not as effective as others.
Responsibility of express opinion of these financial controls and statements within its internal control of such reports. This firm conducted the audit in accordance with PCAOB standards of the United States, which require the plan and performance of an audit for reasonable assurance that those financial statements are both free of material misstatement and that effective controls are in place and maintained to eliminate those misstatements. Our audit of financial statements included examination and testing of internal controls, inventory, payroll, deposits and withdrawals, along with receipts and payments. These evaluation gave the audit team an understanding of the internal procedures and controls when dealing with financial controls and statements, gave the audit team a reasonable basis for our
Internal controls provide foundation for successful and safe organization. Information listed in this brief will provide management some insight into the internal controls and some risk organization should be aware off.
Internal controls are the controls and preventive measures that a business should consider adopting in order to prevent and mitigate cash losses from dishonest schemes by employees, customers, and other parties it deals with. Every business should institute and enforce internal controls that are effective in preventing fraud.
Internal control includes all activities and processes that control or prevent risks and fraud. Types of internal control measures that can be used in the service industry are:
The report on internal controls, according to ExxonMobil’s CEO, Treasurer and Controller, states they are solely “responsible for establishing and maintaining adequate internal control over (ExxonMobil’s) financial reporting.” They evaluated the effectiveness of internal controls over financial reporting based on COSO’s framework and concluded that controls were effective (MD&A, F-22). The report in internal controls acknowledged us—ExxonMobil’s independent public accounting firm PricewaterhouseCoopers LLP (PwC)—stating that the Corporation maintained effective internal control over financial reporting for 2009 and 2010 as it is the responsibility of management to maintain and assess its effectiveness. We, PwC, are responsible only to express an opinion on internal controls, which we opined in 2009 as unqualified (MD&A, F-22).
Controlling is the fourth management function and its purpose is straightforward- to make sure that actual performance meets or surpasses objectives. It is well used for decision making and problem solving. Effective control depends on other management functions and it gives feedback to them. These functions are planning, organizing and leading. Planning sets directions and allocates resources. Organizing puts people and material resources together in working combinations. Leading motivates people to use these resources in the best way. Basically, the function of controlling is to make sure that the right things happen in a right time and in the right way.Control helps that overall directions of individuals and groups are consistent with short-range and long-range organizational plans. Also, it helps to ensure that objectives and accomplishments are coherent with one another throughout an organization. Moreover, it helps maintaining fulfillment with essential organizational rules and policies. Good example where we can see role of control is in helping to protect individual rights to become equivalent with employment opportunities at work. The control process practiced by managers includes four steps: 1) establish objectives and standards 2) measure actual performance 3) compare results with objectives and standards and 4) take actions if necessary1. The controlling process starts with establishing performance objectives and standards which means that the controlling process begins with planning. Performance objectives should be defined and associated with specific measurement standards for determining how well they are accomplished. Standards are the targets of performance. The next step of the control process would be measur...
There are three categories of control: policies, programs and technical control. Controls can be classified as :
The Feedback after applied and executed is the most important of the process of control, Outcome controls are judge by the result of the organization’s activity. The behavior control involves manufacturing to know how the members are doing and behave in a daily base. The financial control in the process execute by monitoring costs and expenditure. The financial control can monitor intangiveis like customer satisfaction and employee morale.