Internal Controls The accounting system gives businesses certain rules to follow when documenting financial information and

other data. The three key branches within the accounting structure, of analysis, design, and implementation must be partnered with a system of control. The internal control is a system within a system and has a major role in how good of the accounting system works. The internal controls protect businesses from fraud; they also ensure that the information that is received is accurate and that all requirements of the regulatory bodies are met. (Banks & McConnell,2 003 ) Congress enacted the Sarbanes-Oxley Act of20 02 as a result of high profile business failures and shady accounting practices. Multi-million dollar companies were doctoring the books so they could continue to be wealthy .The fall of Enron was the last straw, and the government decided to step in. Section 404 of the Sarbanes-Oxley Act requires management to accept the responsibility for implementing and keep sufficient internal controls, including putting their effectiveness in writing. The financial statement auditor must report on managements ability to maintain the effectiveness of its internal controls by the end of the year for the company. This Sarbanes-Oxley Act has a positive, long lasting effect on the way business is done and hopefully America will not witness another debacle like Enron or WorldCom. (Banks & McConnell,200 3)

Environment can limit internal (Agami. it can have a negative effect on a companys finances.20 06) Internal controls are based on the policies that management deems to be effective. sponsored by Financial Executives International (www. Finally. According to the article Reporting on Internal Control over Financial Reporting³the stock prices of 3 Internal Controls companies that disclosed material weakness experienced declines of 5% to 10%. Investors now scrutinize a companys financial inside and out before buying stock. which looked at 141 companies that disclosed material weakness between November20 03 and October2004. A study by the Stanford Law School. organizational culture can influence the acceptable behavior of an employee.The sudden fall of Enron made American society look at investing in a whole new light. When employees see unacceptable behavior being accepted by a senior manager. found that companies which gave detailed disclosures regarding the material weakness in their ICOFR experienced less of a decrease in stock price than those that did not. This was what happened in the Enron scandal. For example. Collusion is the main limitation on internal control. With that being said. lack of knowledge can limit internal controls. While admitting weaknesses in internal controls can make a company seem honest and forthcoming. staff working together for gain or other motives. it becomes acceptable and this behavior can carry over into other facets of the company. there are certain limitations that could keep internal control from working effectively. If accountants and others who handle .

qualified personnel. Internal controls must be a top priority in any company in order to succeed. and independent internal verification. Also. (Agami. All companies should have consistent procedures that describe the duties that must be performed. written procedures will not guarantee good internal control. errors will be decrease along with the chances of fraud. . First of all. ability should match responsibility Staff positions should be filled with the most competent persons are not clear on the provisions of internal controls. and electronic controls. they will do a better. Results must be monitored to assure the system is working correctly. and if they not adhered to properly 4 Internal Controls the whole internal control system could collapse. then how will it work? Companies have to make sure that the internal controls are understood by everyone. and to do this everyone must be properly trained.2 006 ) There are four principles of internal controls and they are establishing responsibility.2 006 ) A good division of duties. Special training may help here. They could lose investors and many people could end up jobless. If the staff has a clear understanding of what is expected of them. They system of procedures must be followed through and through. and sound. When a company has poor internal controls it can hurt a lot of people. mechanical. These four principles fall hand in hand. (Agami. job. segregation of duties. using physical. People who are under qualified will be less able to perform their duties without errors.

G &McConnell.htm Internal Controls Download this Document for FreePrintMobileCollectionsReport Document Report this document? Please tell us reason(s) for reporting this document Top of Form ffcbe453739eae4 doc Spam or junk Porn adult content .5 Internal Controls References Agami. (2006). allbus i ne s s . Retrieved at http://www.html Banks. September). (2003. Reporting on Internal Control over Financial Reporting. A. How Sarbanes-Oxley Will Change the Audit process. (Retrieved fromht t p: //w w w . com /prof e s s ional-s cie nt i fic / accou nt ing -t ax / 41032291.journalofaccountancy. The CPA Journal. J. Journal of Accountancy.

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