Internal_Controls

Internal Controls By Jennifer Rash XACC/280 November 7, 2010 Internal controls are an important aspect of any company. The two primary goals of internal control are to protect the assets of an organization from any illegal use, such as robbery and the second goal is to make sure that the accounting records are accurate and to make sure that there are fewer mistakes. The Sarbanes-Oakley Act of 2002 affected internal controls in a positive way. Even though there are limitations of internal controls, if a company was to announce deficiencies in its internal controls, the company would more than likely experience a fall in its stock prices. There are four internal control principles and these four principles can be compared with each other. Internal controls are a method that companies like to use and this allows them to spot any problems within the financial information. The two primary goals of internal controls are important to ensuring that the assets and accounting records within the organization are taken care of. The first goal of internal control is to protect the assets for the company. This is an important goal because there is a lot of fraud going on in the business organizations and this goal helps to prevent things like employee theft. The second goal of internal controls is to make sure that the accounting records are accurate and that there are fewer errors when dealing with the accounting process. This is also an important goal because as humans, we are going to make mistakes and this goal will help ensure that there will be fewer errors and mistakes. Both of these goals are important because they both would help to improve an organization. The Sarbanes-Oakley Act of was enforced in 2002. “Under the Sarbanes-Oxley Act, all publicly traded U.S. corporations are required to maintain an adequate system of internal control” (Weygandt, Kimmel, & Kieso, 2008). This act is also called SOX and it was a very important law that was passed. The great thing about the Sarbanes-Oakley Act is it forced the companies to pay more attention to their internal controls (Weygandt, Kimmel, and Kieso, 2008). The Sarbanes-Oakley Act affected internal controls in a positive way because this act did a good job at improving internal controls within companies. Seeing how it forced companies to look more closely at their internal controls, companies were able to uncover things that longer needed to be within the company and it allowed companies to see whether or not they needed to add more controls. Even though there were some people who did not approve of SOX, the majority was glad to have it in place and some people even said they would not invest in a company that did not follow the required SOX requirements. If a company was to announce deficiencies in its internal controls, the company would probably experience a fall of their stock prices based on the fact that many people do not trust a company if it had deficiencies within their internal controls. “One poll found that about 60% of investors believe that SOX will help safeguard their stock investtments” (Weygandt, Kimmel, & Kieso, 2008). People would be afraid to invest in the stock because they feel that they are taking a risk being involved within the company. If there were deficiencies in their internal controls than there could be a problem within the company they did not know about and this could hurt the company. Even though it is important for a company to have internal controls, I feel that there are limitations to everything and there are some things that should have a limit or set boundaries. It is important for internal controls to protect a company’s assets and to make sure that the records are accurate but there is a limit that a company should follow when following these goals. There needs to be limitations because for one, it could be costly for a company to buy security cameras to keep an eye on shoplifters, especially if it were a smaller company who could not afford the added expenses. Four internal control principles are establishing responsibility, using physical, mechanical, and electronic controls, segregation of duties, and independent internal verification. All of these principles are important to use in internal controls because each of these will help protect the company against things like robbery and theft and will allow better internal controls. It is important to establish responsibility because that way if there was a mistake, the company would know who to look at because they are the only ones responsible for that given task. Using physical, mechanical, and electronic controls is important because these are good methods to use to ensure the safety of the assets of the company. Segregation of duties needs to be used because the employees can look over each other’s work to ensure that there is a less chance of a mistake being made. Independent internal verification is important because it is a great idea for the data that the employees have completed to be reviewed in case of irregularities or mistakes. All of the principles focus on maintaining the two goals of internal controls. Internal controls are what is able to keep a company running and to help ensure they stay in business. Any company needs to follow the two main goals of internal controls, which are to protect the company’s assets from instances such as robbery and to ensure that the work is accurate. The Sarbanes-Oakley Act of 2002 affected internal controls in a positive way because it forced organizations to review their internal controls and to make necessary changes regarding their internal controls. It is important for a company to make sure there are no deficiencies in their internal controls because it could affect their stock prices because people would not trust the company as much and invest money into the company because they feel the best way to trust a company is if they follow the internal controls that safeguard the company. Even though internal controls are important, there are limitations to it because some companies might not be able to afford a high-tech security system for their business and there could be a risk of shoplifting. The four internal control principles are important to use in a business because they all help to protect a business from fraud and robbery, as well as mistakes made that could hurt the company. Internal controls are an important method to use in an organization because it will help to protect the business. Reference Page Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: John Wiley & Sons, Inc.