Accounting Essay

Internal Controls

May 5,2013

Internal controls are methods used in businesses to monitor many things within the business such as ; assets, prevent fraud, ensure management policies are used and minimize errors. Accounting controls provide safeguards for assets within the company to keep records protected. Internal controls are designed to authorized transactions that is recorded in the financial statement preparations. A independent internal verification is provided via internal controls maximizing the benefits of this system. There are mechanical, electronic and physical controls that have opportunities for final verification of accuracies. Internal controls ensure that all public companies follow standard rules to operate and report finances in a business. It is required by law to monitor the different models in internal controls. Internal controls in defined by procedures and actions that a company uses. There are two primary goals of internal controls used to protect assets from unauthorized use and theft, and to enhance the reliability of the company's accounting records to prevent errors. At the organization level, internal control objectives relate to the relativity of the reliability of financial reporting, timely feedback on the achievement of operations of strategic goals, and compliance with laws and regulations (Anderson, Chris, 2008). Internal controls in accounting are considered an essential business function, and growth potential necessary to proceed. Included in the internal controls are the elements of risk assessment, information communication and goes far as defining the roles and responsibilities of each employee. Companies often use internal use internal controls in the accounting department in order to avoid inaccurate data recording as well as protecting companies from fraud. Internal controls will also be used by companies to avoid theft of assets and unauthorized use. The acquisition and disposal of assets is also very important part of internal controls. These policies and procedures help companies in the prevention of any unauthorized activities which could have a negative impact on the company's financial statements. the primary internal control element is the audit report provided by the internal certified public accountant. However, the external audit determines the degree of how evaluated the internal controls were applied. The Sarbanes-Oxley Act 2002 has affected the internal controls into a higher degree of protection against fraud within corporations. The Sarbanes-Oxley Act reacts in a rigorous discipline for a financial disclosures of corporations and a zero tolerance for fraud practices (Soklaw.com, 2006 ). Companies such as Enron, Tyco, and Word Com committed fraudulent practices which brought upon distrust for investors and required better reproduction of regulatory stands (Soxlaw.com, 2006 ). Because investors are more confident and comfortable with a company that complies with Sarbanes-Oxley, it is true in turn of those investors lost their confidence in those companies which was a deficient in its internal control. With this loss in confidence, the company that has deficiencies in its internal control with this loss in confidence in the risk of a drop in stock prices. As part of Sarbanes-Oxley Act, companies are required to report any deficiencies their internal controls. When this happens that company may fail or try and sell their shares, which will make prices drop. When one business pulls its stock others

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