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...
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...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.
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