Internal Controls

Principles of Internal Controls

According to Sarbanes –Oxley Act, all U.S corporations that are publicly traded are

required to maintain adequate system of internal control. Internal controls were created to assist

organizations and companies to reach specific objectives and goals. Simply explained “Internal

controls” are procedures and actions which organizations or companies monitor them. By

using Internal controls companies can increase the likelihood of meeting certain goals as well as

insure the legal compliance and efficiency in operations. The economic conditions are ever-

changing, as are competitors; therefore, it is necessary for companies to watch closely demand

and supply shifts as well as the company’s efforts to company with laws (Weygandt, Kimmel, &

Kieso, 2008).

After numerous corporate scandals, congress decided to pass Sarbanes-Oxley Act of 2002

(SOX). This specific act requires management of the company “to assess both the design and

operating effectiveness of selected internal controls related to significant accounts and relevant

assertions in the context of material misstatement risks; Understand the flow of transactions,

including IT aspects, sufficient enough to identify points at which a misstatement could arise;

Evaluate company-level (entity-level) controls, which correspond to the components of the

COSO framework; Perform a fraud risk assessment; Evaluate controls designed to prevent

or detect fraud in financial reporting process; Scale the assessment based on the size and

complexity of the company; Rely on management's work based on factors such as competency,

objectivity, and risk; Conclude on the adequacy of internal control over fin...

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...ing. Companies are also obligated to report

their insights to their stock holders. The Internal control systems were designed to help the

company to avoid financial problems by safe guarding their assets form employees and

unauthorized use. This is process is very important for a company to achieve its goals and avoid

unnecessary problems.

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Works Cited

: Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. Retrieved on Feb 28, 2011 from: Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: Wiley.

COSO. Retrieved on Feb 28, 2011 from: COSO, http://www.coso.org/IC-IntegratedFramework-summary.htm

Barry Boehm, Retrieved on Feb 28, 2011 from: Barry Boehm, Software Engineering and Economics,

1981) http://en.wikipedia.org/wiki/Verification_and_validation