Internal controls are increasingly a crucial part of any business large or small. Controls serve two purposes according to financial accounting chapter eight; they safeguard assets and enhance the accuracy and reliability of accounting records. Expanding on that concept internal controls are put in place as a result of activities that have occurred in the past and are an effort to protect internal and external users. Internal controls safeguard company assets by outlining fair and efficient regulations in an effort to prevent theft. Regulations designed to establish responsibility, segregation of duties, and accountability protect investors, management, and the public. The result of a financial outrage and catastrophes of WorldCom, Enron, Tyco, Hollinger, and Tyco necessitated the need for better regulation and control leading to the creation of the Sarbanes Oxley Act (SOX). Public Law 107-204 of the 107thCongress was enacted by the senate and House of Representatives to “To protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.” This law is better known as the Sarbanes Oxley Act, consists of a number of sections designed to oversee and prevent securities fraud, and enhancements to white-collar crime. Thesix key principles of the SOX internal controlsaccording to Internal Control and Cash are: establishment of responsibility, segregation of duties, documentation procedures, independent verification, physical controls, and other controls. Sarbanes Oxley has changed internal controls through risk mitigation and accountability. A key factor, the establishment of responsibility includes authorization and approval of transactions by a ... ... middle of paper ... ...have a purchasing, shipping, and receiving department; they may be such a small business that these roles are handled by a single individual. Even if the company does possess separate departments, the purchaser and the receiver could always collude to defeat the control, ordering more but reporting less. Controls and regulations are in place to ensure fair, efficient, and transparent markets, they are a preventative measure resulting from experiences. These controls hope to encourage honesty through accountability, and associating a personal cost to dishonesty. They are in place to establish and maintain regulations to protect the interest of investors, the public, and further economic growth. Only time will tell if they are successful or just an expensive Band-Aid for the human need to possess more than one needs or deserves - greed.
Internal controls is defined as a process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance
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.
Justification for intervention for economic regulatory efforts arises out of alleged inability of the marketplace to deal with particular structural problems. Of course, details of any program often reflect political force, not reasoned argument. Yet thoughtful justification is still needed when programs are evaluated.[1]
Dodd-Frank and Sarbanes-Oxley Acts are important legislations in the corporate world because of their link to public and privately held companies. Sarbanes-Oxley Act was enacted to enhance transparency and accountability in publicly traded companies. On the contrary, Dodd-Frank Act was enacted to disentangle the confused web of financial service company valuations. Actually, these valuations are usually hidden by complex and unclear financial instruments. The introduction of Sarbanes-Oxley Act was fueled by recent incidents of accounting frauds by top executives of major corporations such as Enron. In contrast, Dodd-Frank Act was enacted as a response to the tendency by banks, insurance companies, hedge funds, rating agencies, and accounting companies to serve up harmful offer of ruined assets and liabilities brought by systemic non-disclosure (Anand, 2011, p.1). While these regulations have some similarities and differences, they have a strong relationship with the financial markets.
In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.
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.
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).
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.
Also with U.S. operations, the type of product impact order fulfillment and shipment. Large and small item are never shipped together.
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).
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).
The regulating state is not going anywhere, there needs to be a change from a largely untrusted self-regulating state to state regulation. Furthermore, social regulation should triumph over economic regulation. State actors should shift their focus on ensuring there is a specialised inspectorate that everyday citizens can hold accountable. The barriers to justice need to be removed and access to take action against a failing regulatory body should be widened. The state must be held more responsible to ensure large powerful actors do not take advantage of regulation for purely economic interest.
What can happen if the government's let go of some of these regulation? Will businesses flourish while hurting the common people? Will deregulation help to push another depression? Will the environment be harmed while people benefit from their selfish desires? These questions will be discussed later in the paper.
...e structure of the market and limiting the amount of competition. That could be troublesome and have undesirable side effects. The challenge is to keep up competition for the benefits it will provide for the entire economy, while in the meantime making an administrative structure that minimizes the negative ramifications that it can have for stability. Thorsten Beck writes that “Together [the banking regulatory rules] would constitute the so-called “safety net”…The safety net consists of: Banking supervision, Deposit insurance (explicit or implicit), Capital requirements, Lender of last resort, Bank crisis resolution (private solutions, bailouts and bank closure policies)” (Beck, 2010). Administrative change can give the powers better tools to manage failing banks later on, and accordingly diminish the negative repercussions on the rest of the financial framework.
Many countries have their own laws. Inside of business world, there are many laws that control the marketplace. It is important to establish controls of inputs and outputs of goods and services in certain countries because it helps the governments to have the entire knowledge of the economy. In particular, The U.S has provided some effective laws with the purpose to further fair, balanced, and competitive business practices. There are three effective laws that are known as statutory law, administration law, and common law.