There are many rules companies must follow whenever documenting financial information or any other data which is gather during any business transactions. In order for said companies to report financial information internal controls have to be put in place as companies have to adhere to certain laws and regulations. Internal controls can be defined as a process which companies follow in order to ensure all financial reporting is done in a reliable and lawful manner. Some think of it as a system which works within a system as it plays a major role on the success of a company’s accounting system. At the organizational level, internal control objectives relate to the reliability of financial reporting, timely feedback on the achievement of operational or strategic goals, and compliance with laws and regulations (Anderson, Chris, 2008). Internal controls in accounting are considered an essential business function which gives companies the growth potential necessary to succeed. Included in the internal controls are the elements of risk assessment, information communication and goes as far as defining the roles and responsibilities of each employee.
Companies will often use internal controls in the accounting department in order to avoid abuse and inaccurate data recording as well as protecting companies from fraud. Internal controls will also be used by companies as a means to avoid theft of assets, and unauthorized use. The acquisition and disposal of assets is also a very important part of internal controls. These policies and procedures will help companies in the prevention or detection of any unauthorized acquisition, use or the disposition of its assets, as these types of activities could have a negative impact on the company’s financial statements. But in order for the internal controls to work, management has to ensure the proper protocols are being followed.
The Sarbanes-Oxley Act was first...