The ability of the management to fulfill financial reporting roles depends on the design and effectiveness of the process as well as the security that is put in place over financial and accounting reporting. Without this controls, it will be difficult for businesses to prepare reliable and timely financial reports for lenders, investors, management and other users. While there is no guarantee that financial reports will miss errors, effective internal control systems over financial reporting are able to substantially minimize such inaccuracies or errors in financial statements of the company.
Over time, an efficient internal control over financial reporting has been made one of the most important legal obligations. For instance, the federal law requires a public company to create an internal control system that gives a reasonable assurance regarding the reliability of the financial reports in line with the Generally Accepted Accounting Principles (GAAP). In addition, the Sarbanes-Oxley Act maintained that the management of public companies assess the effectiveness of Internal Control over Financial Reporting (ICFR) and give reports of the result to the public on annual basis. Also, the act needs large public companies to engage independent auditors in auditing the effectiveness of their ICFR (Vay, 2006).
Management plays an important role in ensuri...
... middle of paper ...
...her advisers, if they deem this to be necessary. I believe that these requirements are sufficient to protect stockholders and potential investors from accounting errors and fraudulent business practices (Johnstone & Gramling, 2014).
Frederikslust, R. (2007).Corporate Governance and Corporate Finance:
A European Perspective. Routledge.
Johnstone, K. M., & Gramling, A. A. (2014). Auditing: a risk-based approach to conducting
a quality audit (9th ed.). Mason, OH: South-Western Cengage Learning.
Nelken, I. (2006). Hedge fund investment management. Amsterdam:
Rezaee, Z. (2009). Corporate governance and ethics. Hoboken, NJ: John Wiley & Sons.
Vay, D. L. (2006). The Effectiveness of the Sarbanes-Oxley Act of 2002 in preventing and
detecting fraud in financial statements: a dissertation. Boca Raton, Fla.: Dissertation.com.
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