Internal Control

903 Words2 Pages
bulb-icon

Recommended: Quality assessment and quality assurance

Companies must have “Internal Control” to maintain principles and limitations. Internal controls are in place to help with securing the company from theft, robbery, and unauthorized use and enhancing the corrected and reliability of its accounting records by minimizing errors and making sure that are no unknown patterns in the accounting process. All U.S. corporations are required to have an adequate system of internal control because of the Sarbanes-Oxley Act of 2002 or the companies will be subject to fines and company officers may be imprisoned that do

not comply.

The Sarbanes-Oxley Act of 2002 (SOX) was implemented because of all of the corporate scandals of the recent years were uncovered. SOX were put into place because it forces companies to pay more attention to internal controls. This system forces the company’s responsibilities on corporate executives and boards of directors to make sure that the companies’ internal controls are effective and reliable and less than one part of the law, companies must develop sound principles of control over financial reporting. The companies must continually develop and check sound principles of control over financial reporting and that the system is in working condition. Independent outside auditors must attest to the level of internal control. In addition, SOX also developed the “Public Company Accounting Oversight Board”, (PCAOB) which now establishes auditing standards and regulates auditor activity. Some corporate executives have complained about the expense and time that has involved in following the requirements but 60% of the investors believe that this is a good system and would not invest in a company that does not follow SOX.

If a company announces that it has de...

... middle of paper ...

...s to internal control are:

• Establishment of responsibility

• Segregation of duties

• Documentation procedures

• Physical, mechanical, and electronic controls

• Independent internal verification

• Other controls such as bonding and requiring employees to take vacation or changing their job position

Using the principles of internal control companies can safe guard their asset and enhance the accuracy and reliability of accounting records by following specific control principles. These measures can vary with the size and nature of the business and with management’s control philosophy. Independent internal verification involves the review of data prepared by employees. Companies should verify records or on a surprise basis and the employee who is independent of the personnel should be responsible for the information and follow up on the verifications.

Show More
Related

  • Internal Control Case Study: Raven's Head Ranch

    760 Words  | 2 Pages

    Internal controls is defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance

    Read More

  • Internal Controls and the Sarbanes-Oxley Act

    782 Words  | 2 Pages

    Internal controls are in place to protect entities against theft from dishonest workers and outside predators. They are also an accurate series of checks and balances and are in place to find discrepancies.

    Read More

  • What Are The Pros And Cons Of The Sarbanes-Oxley Act

    174 Words  | 1 Pages

    In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.

    Read More

  • External Locus Of Control: Internal And External Locus Of Control

    800 Words  | 2 Pages

    The book defines Locus of control a reflection of whether people attribute the causes of events to themselves or to the external environment. Neurotic people tend to hold an external locus of control, meaning that they often believe that the events that occur around them are driven by luck, chance, or fate. Less neurotic people tend to hold an internal locus of control, meaning that they believe that their own behavior dictates events (Colquitt, J. A., LePine, J. A., & Wesson, M. J. 2017).

    Read More

  • Internal Controls and the Sarbanes-Oxley Act of 2002

    744 Words  | 2 Pages

    In order to be successful in business, a company must be able to track their assets. This tracking system is typically done by a bookkeeper and must be reliable in order to be effective. The way a company ensures their financial records are reliable is by setting up a system of internal controls. Internal controls allow a company to protect its assets from fraud and theft as well as ensuring records are kept accurately by reducing errors and irregularities (Keisco, Kimmel and Weygandt, 2008). Internal controls work by assigning responsibility, separating duties to provide checks and balances, hiring an independent verification agent and through the use of technology and physical controls. In many instances, internal controls are required and overseen by the Sarbanes-Oxley Act of 2002.

    Read More

  • Sarbanes Oxley Act SOX

    1881 Words  | 4 Pages

    After major corporate and accounting scandals like those that affected Tyco, Worldcom and Enron the Federal government passed a law known as the Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act. This law was passed in hopes of thwarting illegal and misleading acts by financial reporters and putting a stop to the decline of public trust in accounting and reporting practices. Two important topics covered in Sarbanes-Oxley are auditor independence and the reporting and assessment of internal controls under section 404.

    Read More

  • Accounting Fraud, the Investor and the Sarbanes Oxley Act

    1981 Words  | 4 Pages

    Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).

    Read More

  • Exxon Mobil Corporation Audit Memo

    1564 Words  | 4 Pages

    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).

    Read More

  • Pcb Case Study Summary

    961 Words  | 2 Pages

    Firms must not rely on internal controls when they have smaller reporting issues. When assessing effectiveness internal controls firms usually fail to identify and test controls that mitigate audit risk at assertion level.

    Read More

  • Ljm1 Internal Control Essay

    1125 Words  | 3 Pages

    1. What important internal controls were ignored when LJM1 was created? Internal controls are those company policies that are established to safeguard company assets, to ensure that accounting records are prepared in a reliable manner and to guarantee the achievement of organizational objectives (Wilson & Key, 2011). LJM1 ignored several important internal controls by violating Enron’s code of conduct.

    Read More

  • Coso's Internal Control Integrated Framework

    590 Words  | 2 Pages

    The COSO Internal Control—Integrated Framework provides a blueprint for implementing an internal control system to assist in ensuring the reliability of financial statements and compliance with Sarbanes-Oxley legislation. The purpose of internal control is to provide reasonable assurance in achieving internal control objectives: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with laws and regulations

    Read More

  • Airport Drug Enforcement

    934 Words  | 2 Pages

    The primary reason for this is that the workers hired to be in charge

    Read More

  • External Locus Of Control

    1226 Words  | 3 Pages

    This fifth negotiation that we did was unlike any other we had done for many reasons. The whole time leading up to the negotiation seemed to be a bunch of unfortunate events at my expense. Although the results that I received at the end of the negotiation weren’t as bad as they could’ve been, I still believe it to be somewhat of a failure because I know I had the potential to do better. If I had an external locus of control I would have just attributed this failure to the influences that affected me leading up to the negotiation. However, being a person with a high internal locus of control I know that my success is based on my own work. I could have been more successful in this negotiation had I been better at planning, been more careful and more

    Read More

  • Hardware Strengths And Weaknesses

    951 Words  | 2 Pages

    Internal control is very important for any company, but it is especially important for small companies. Small companies sometimes have situations where fewer employees are given many jobs, which can lead to fraud. Internal control is beneficial to companies such as H & R Hardware because it can help keep fraud out of the company.

    Read More

  • Organizational Control

    1881 Words  | 4 Pages

    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...

    Read More

More about Internal Control

Open Document