Internal_Controls

Internal controls Axia college Xcom/285 8/27/2011 By: Dennis Seilhamer Internal controls Internal controls are referred to as a system of checks and balances. It is the methods and procedures that management came up with to safeguard assets and to manage resources. An internal control system was designed to detour fraud, employee, customer, and vendor thefts, and minimize errors in the accounting records. A system of internal control provides a company with the assurance that they will have; Reliable financial and operational reports, efficient and effective operations, and compliance with acceptable state and federal laws, regulations, and university policies and procedures. It also is how a company can protect its resources against waste and inefficiencies. Department heads of a company should be setting the “tone at the top” of their departments control environment, assuring that adequate controls are put in place and that accurate financial numbers can be reviewed. Sarbanes-Oxley, commonly referred to as SOX, was a law enacted as a response to the massive accounting frauds perpetuated by major corporations in the early 2000s. Congress wished to avoid another Enron or WorldCom. By mandating highly stringent and voluminous procedures throughout an organization, however, complying with SOX has also become very expensive and burdensome. The federal law enacted by Congress in response to massive corporate and accounting fraud in the early 2000s. Investors from major corporations such as Enron, Tyco, Adelphia and WorldCom lost heavily due to deceptive and highly inaccurate financial statements. The loss of billions of dollars in shareholder wealth shook investor confidence in the U.S. financial markets. In an effort to shore up confidence from the capital markets, the legislation aim, institutionalizing management, financial and accounting controls at U.S. publicity trade companies. (Marv Dumon) Among the key provisions that require implementation is: 1. Section 302 mandates the senior officers of a public company to certify that they have established, maintained and designed internal controls to ensure the accuracy of company information found in their periodic reports. 2. Section 404 requires management and external auditors to report on the adequacy of the internal control over financial reporting. Internal controls have two primary goals. The first of those primary goals is to make sure that their assets are protected from employee theft, robbery and unauthorized use. The second primary goal is to make sure that they have reliable and accurate accounting records. “This is done by reducing the risk of errors (unintentional mistakes) and irregularities (intentional mistakes and misrepresentations) in the accounting process” (Weygant, 340). According to Weygandt, Kimmel, Kieso (2008), “Under the Sarbanes-Oxley Act, all publicly traded U.S. corporations are required to maintain an adequate system of internal control. Companies that fail to comply are subject to fines, and company officers may be imprisoned”. If a company were to announce that there were deficiencies in their internal controls the customers are going to automatically assume that something shifty or unethical is possibly going on. The investors of the company may be wondering the same thing. This will slow down if not stop investors and customers to discontinue business with the company. In turn the price of its stock will fall. Internal control can provide reasonable, not absolute, assurance that the objectives of an organization will be met. The concept of reasonable assurance implies a high degree of assurance, constrained by the costs and benefits of establishing incremental control procedures. Effective internal control implies the organization generates reliable financial reporting and substantially complies with the laws and regulations that apply to it. However, whether an organization achieves operational and strategic objectives may depend on factors outside the enterprise, such as competition or technological innovation. These factors are outside the scope of internal control; therefore, effective internal control provides only timely information or feedback on progress towards the achievement of operational and strategic objectives, but cannot guarantee their achievement. Internal controls limit individual employee access to manipulating the data or misrepresenting the financial data. Internal controls are critical for accounting staff who work regularly with the company's financial data. However, internal controls are not foolproof. There are limits to internal control policies and procedures implemented by companies. (McIntosh, 2001) Internal controls give a company a level of confidence in financial information reported on the financial statements. Internal controls limit individual employees access to manipulating the data or misrepresenting the financial data. Internal controls are very important for accounting employees that work with the company's financial information. However, internal controls are not foolproof. There are limits to internal control policies and procedures implemented by companies. References http://www.ehow.com/list_7463602_limitations-internal-control-accounting_.html http://www.k-state.edu/internalaudit/intcontr.html http://www.businessdictionary.com/definition/internal-control.html Internal Control System A Preventive Maintenance Program by Baljeet35 / Advertising, marketing, public relations community The AICPA's Auditing Standards Board issued two final standards on ... by Journal of Accountancy