The Purpose of Internal Controls in the Accounting Process Essays

The Purpose of Internal Controls in the Accounting Process Essays

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Internal control is the specific procedures used within a company to safeguard its assets from employee theft, robbery, and unauthorized use and enhanc the accuracy and reliability of its accounting records by making fewer mistakes (Weygandt, Kimmel, and Kieso, 2008).
There are six principles that are used throughout the industry as standards for such control. They are:
1. Establishment of responsibility
2. Segregation of duties
3. Documentation procedures
4. Physical, mechanical, and electronic controls
5. Independent, internal verification
6. Other controls
The first of these controls, establishment of responsibility, is the assignment of responsibility to certain employees. It has been found that “control is most effective when only one person is responsible for a given task” (Weygandt, Kimmel, and Kieso, 2008) which includes authorization and approval of transactions.
Segregation of duties is the need to separate recording keeping of an assets from the location of that asset. Meaning, the person who physically has the money is accountable to the person who assigned the money to them. The person who assigned the money has documented the exact amount of money given to the person who signs for it which says that they agree to the amount that is documented.
Procedures for documenting any transaction in a company should be in place. Whenever a sale is made, there should be a receipt; whenever something is purchased for the company, there should be an invoice. This type of documentation aids in eradicating theft.
Physical controls that help with internal controls are items such as vaults, computer passwords, locked storages and warehouses with inventory that can only be accessed by the individuals assigned with the code...

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...s outweighed by the cost to pay him. In this instance, assets may become a liability.
The need for internal controls for a company has been exemplify in the recent downfalls of companies such as Enron. The internal employees, presidents and their assistants, who were to safeguard the company’s assets, were the ones taking the assets. SOX have, since, found the executives and boards of companies responsible for their actions and of their employees.
It is in the best interest of companies that want to remain successful to continue to implement strenuous internal controls by establishing responsibility, segregating the duties, documenting the procedures, use physical, mechanical, and electronic, independent and internal verifications, and other controls to safeguard their assets from those who want to rob, steal, and use unauthorized assets from inside the company.

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