Xacc/280 Internal Controls

Internal Controls Xacc/280 Connie Hardgrove Axia College By: Billie Grimes
Internal controls are a necessary part of business in a company. Internal control is defined as, a system that safeguards a company’s assets from employee theft, robbery, and unauthorized use. Internal control also ensures the accuracy and reliability of accounting records in the accounting process for a company (Weygandt, Kimmel, Kieso, 2008). The two primary goals of internal control are to safeguard a company’s assets, and to enhance accuracy and reliability of accounting records (Weygandt, Kimmel, Kieso, 2008). This system within a system has an important role on how well the accounting system works. The purpose of internal controls is to protect businesses from fraud, and ensure that the information that is accurate and all of the regulatory bodies requirements are followed. (Banks, McConnell, 2003).The Sarbanes-Oxley Act of 2002 was passed to make sure companies pay more attention to their internal controls. The Sarbanes-Oxley Act puts more responsibility on the corporate executives and their board of directors to make sure internal controls are effective and reliable (Weygandt, Kimmel, Kieso, 2008). The companies but have adequate principles of the controls of their financial reporting, and verify all the controls are working correctly. The companies must get an outside auditor Public Company Accounting Oversight Board (PCAOB), to attest to their level of internal controls. Billie, most of this paragraph is copied from sources. Though properly cited, this does not demonstrate knowledge on your part as you have not expressed thoughts in your own words. Companies practiced poor accounting practices and illegal practices that caused their company to fail before the Sarbanes-Oxley Act.
Since the Act has been in place if a company indicates weakness within the company, the company stock will decline. Stanford Law School, sponsored by Financial Executives International (www.fei.org), conducted a study that focused on 141 companies between November 2003 and October 2004 that gave detailed disclosures about their material weaknesses had a decline in stock by 5 to 10 percent (Agami, 2006). There can be certain limitations that could keep internal controls from not working effectively. For instance the fall of Enron was because of the staff working to together to defraud the accounting practices for their personal gain. These types of practices can cause internal controls to fail as well as lack of knowledge. If the company’s accountant is unclear on the policies and procedures of internal controls, this will lead the company to fail. All employees must have knowledge of internal controls, because if the employees don’t have the knowledge they cannot practice internal controls, this why it is important that employees should be properly trained on internal control practice. All employees should have the knowledge on what will keep the company safe from failure. It is the responsibility of the company to make sure they have the right people for the right job. If a company does not place the right employees in key positions then this can lead the company to have errors that could make the company fail. If a company does not supply their employees with the correct tools to complete a job the job will not be completed correctly and the whole company will
suffer. The four principles of internal controls are, establishing responsibility, using mechanical, physical, and electronic controls, segregation of duties, and independent internal verification. Undertrained employees will not perform properly and could cause the internal controls to collapse. Procedures should be put in place by companies so their employees will have these guidelines to follow. Independent internal verification will help the company, this process is also used in internal control expect there is a third party auditor. It is less likely mistakes will be made if a company checks data done by their employees for errors. It is best to follow the internal control procedures and mimic these procedures within your our company procedures for your employees. Companies should also have specific training for internal controls and company procedures about internal controls. Physical and mechanical are especially helpful with internal controls because it protects the company’s assets. Simply keeping security at a company’s site for theft or having passwords to the computer system to prevent wrong information to get out of the company can help protect the company. These extra steps the company uses to protect their assets can also help the company stay within the internal control policies. If companies keep their staff focused on these procedures there will be less room for error.

References Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2008). Financial accounting (6th ed.). Hoboken, NJ: Wiley. Agami, A. (2006). Reporting on Internal Control over Financial Reporting. The CPA Journal. (Retrieved from http://www.allbusiness.com/professional-scientific/accounting-tax/4103229-1.html