Crystal Riley Sanford
September 10, 2010
Instructor Glenn Dakin
Internal controls are the measures a company takes to do accomplish two primary goals; protect their assets from employee theft, robbery and unauthorized use. Internal controls are also used to increase accuracy of company financial information, reducing the risk of errors (accidental) and irregularities (intentional) (Weygandt, 2009). Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (SOX) was put into effect because of the corporate scams that were being committed in that time period. Congress passed the act to force companies to keep closer tabs on their internal controls. Under SOX, companies are required to “develop sound principles of control over financial reporting” (Weygandt, 2009). According to Wegandt (2009), corporate executives have complained in about the time and expense that is involved in monitoring internal controls, but it has been proven that investors are less likely to invest in a company that does not comply with SOX. So SOX has affected internal controls in a positive way because a company is more likely to attract investors on top of that company having more accurate records. Even if it were not for the investors, companies will see less fraud and a higher amount of accuracy in their records by complying with SOX.
As part of SOX, companies are also required to report any deficiencies in their internal controls. Because investors are more confident and comfortable with a company that complies with SOX, it is true in turn those investors lose confidence in a company that has deficiencies in its internal control. With this lose in confidence is the risk of a drop in stock prices.
Internal controls can only provide a company with a certain amount of assurance that their assets are being protected. For example, in the accounting office at Wal-Mart, the cash is required to be balanced three times a day; before...