Internal_Controls

Internal Control is a very important part of a business. Because there are dishonest people that seem to be honest, there needs to be safeguards for a company’s assets. A company must have good accounting records. This is done by reducing the risk of errors and irregularities in the accounting process (Internal Control and Cash; Chapter 8, pg. 340). A company must make sure that all parts of their Internal Control are in place. The Sarbanes-Oxley Act 2002 makes companies pay more attention to the internal controls of their company. SOX law says that companies have to develop sound principles of control over their financial reporting (Internal Control and Cash; Chapter 8, pg. 341). With SOX in effect it makes it hard for companies to have scandals such as those of Enron, Tyco and WorldCom. Most companies have welcomed this Act, because it has helped the company to become aware of unlawful or errors before it is too late. When a company has poor internal control it can cause a company’s stock prices to fall, because their materials are being counted incorrectly or not being counted at all. There is shoplifting that occurs, when the company counts on those materials to bring in money. Limitations on internal control could come from the size of a company. If the company is small, it may it difficult to segregate duties or to provide for independent internal verification (Internal Control and Cash; Chapter 8, pg. 347). Companies could eliminate such losses by having a security guard stop and search customers as they leave the store, but this could cause a negative effect and cannot be justified (Internal Control and Cash; Chapter 8, pg. 347). But I do think it is effective when stores can hire employees to pose a customer and watch other customers and this works to curb shoplifting. When a company establishes responsibility the company would assign one employee to one task, such as assign a grocery store the employee would be assigned to their own cash drawer, so that the company could easily keep track of the cash shortage if any. It would be easy to track the error as oppose to if two or more employees were assigned the same cash drawer and only one cash out was done during a certain period. Physical, Mechanical, and Electronic Controls are used to safeguard assets and to enhance the accuracy and reliability of the accounting records. When the IT department create computer programs to prevent unintentional or intentional errors. The computer system would also require that all users of the computer program use a specific password assigned to each user. Some companies may use safes, vaults, and safety deposit boxes. Independent Internal Verification is when companies compare recorded accountability with existing assets (Internal Control and Cash; Chapter 8, pg. 345). Such as when a store uses the reconciliation of the cash register tape with the cash in the register. Larger companies use Internal Auditors who continuously evaluate the effectiveness of the company’s internal control system (Internal Control and Cash; Chapter 8, pg. 346). Internal Control is such a vital part of a company, not only to help eliminate scandal within a company, but to help companies keep track, keep control and stay afloat in their businesses. Internal Control helps a company to safeguard its assets and enhance the accuracy and reliability of its accounting records (Internal Control and Cash; Chapter 8, pg. 340). With the Sarbanes-Oxley Act passed by congress in 2002, it has been made possible by law to force companies to pay more attention to their internal controls. Most companies have seen the value in SOX. It is also important to build trust in their investors. When all principles of Internal Control are implemented all assets are safeguarded and the accuracy and reliabilities of accounting records are enhanced and there are little to no limitations of Internal Control. All companies according to law must implement all the principles of Internal Control such as Establishment of Responsibility, Segregation of Duties, Documentation Procedures, Physical, Mechanical, and Electronic Controls and Independent Internal Verification. There are other controls that companies can use such as Bond employees who handle cash, rotating employee’s duties and require employees to take vacations and conduct thorough background checks. All of these controls help to deter employees from attempting theft, and bonded employees know that the insurance company will vigorously prosecute offenders. All of these Internal Control components are important for companies to implement to keep their businesses alive and honest.