Internal Controls

Topics: Sarbanes–Oxley Act, Internal control, Asset Pages: 3 (866 words) Published: January 30, 2011
Internal Controls|
XACC 280 week 8 assignment|

[Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.]|

All people are not honest. Even when you are dealing with people from your church, school, or even friends you have known for years, there is the possibility that the person you are dealing with is not an honest person. It is for this reason that a business must have internal control. Internal control is the way that a business protects itself from dishonest being taken advantage of. Internal control has two primary goals; one is to safeguard its assets from employee theft, robbery, and unauthorized use. The other is to enhance the accuracy and reliability of its accounting records. Methods of internal control what happens when a business fails to have adequate internal control will be discussed in this paper.

For decades, the internal controls of a business were left to the company with no penalties for inadequate controls. All this changed with the introduction of the Sarbanes-Oxley Act of 2002 or SOX. SOX is a law that forces companies to pay more attention to internal controls. Companies that fail to comply with this law are subject to fines and the ones in charge could face jail time.

If a company were to announce deficiencies in its internal controls would probably experience a drop in the price of its stock. This is because announcing that your internal controls are failing, would cause the public to lose faith in the company. It shows not only that the company is weak, but also that the people in charge are not capable of properly overseeing the activities in their own company. When this happens people assume that the company is going to fail and they try to sell their shares. That makes prices drop.

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