Preview

Internal Controls Essay

Good Essays
Open Document
Open Document
749 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Internal Controls Essay
Internal Controls Paper
FIN/324
University of Phoenix
November 2, 2005

Internal Controls Paper When it comes to the internal controls of firms and enterprises, executives are constantly keeping a close look on the accuracy and effectiveness of these controls along with seeking ways to better them. According to COSO (2004) the implementation of internal controls helps guide companies in reaching towards their profitability goals, the accomplishment of their mission statement, and helps minimize any unexpected events that may occur. This analysis will: (1) describe the importance of internal control programs, (2) identify effective internal control techniques, (3) illustrate the relationship between ethics and internal control techniques, and (4) describe the importance of the Sarbanes-Oxley Act.
The Importance of Internal Control Programs Effective internal controls are the foundation to a safe, sound, and successful enterprise. A properly designed and consistently enforced system of internal controls helps a company 's board of directors and management safeguard their resources and produce reliable financial reports. According to COSO, the three primary objectives of an internal control system are to ensure; efficient and effective operations, accurate financial reporting, and compliance with laws and regulations. Internal control programs can help managers in many ways such as measure performance, make decisions, evaluate progress, and limit risks. An effective control program can also help with avoiding surprises by detecting mistakes caused by factors such as personal distraction, carelessness, fatigue, errors in judgment, or unclear instructions in addition to fraud or deliberate noncompliance with policies. According to the American Institute of Certified Public Accountants (AICPA), effective and well designed internal control systems are still subject to execution risk. This means that human beings still must execute most control systems and even


References: COSO (2004). The Committee of Sponsoring Organization of the Treadway Commission Retrieved November 2, 2005 from www.fei.org/coso/rfbookstore/pud AICPA (2005). American Institute of Certified Public Accountants. Retrieved November 2, 2005 from www.aicpa.org/nolimits/ships
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Satisfactory Essays

    ACC 291 Final Exam
    • 2547 Words
    • 12 Pages

    ACC 291 Final Exam

    1.The Sarbanes-Oxley Act requires that all publicly traded companies maintain a system of internal controls. Internal controls can be defined as a plan to…

    • 2547 Words
    • 12 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Xacc/280 Internal Controls
    • 781 Words
    • 4 Pages

    Xacc/280 Internal Controls

    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…

    • 781 Words
    • 4 Pages
    Good Essays
    Read More
  • Best Essays

    Acct 504 Case Study 2
    • 1108 Words
    • 5 Pages

    Acct 504 Case Study 2

    Internal controls are vital to any company’s business and financial sustainability. Internal controls consist of measures taken by a company safeguarding against fraud, and theft. Internal controls ensure accuracy and reliability in accounting data, and secure policies within the organization. Further, internal controls evaluate all levels of performance. These are addressed with five principles of internal control: Establishment of responsibility, Segregation of duties, Documentation procedures, Physical controls, Independent internal verification, and Human resource controls.…

    • 1108 Words
    • 5 Pages
    Best Essays
    Read More
  • Better Essays

    Xacc/280 Week 8 Assignment Internal Controls Essay Example
    • 1015 Words
    • 4 Pages

    Xacc/280 Week 8 Assignment Internal Controls Essay Example

    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.…

    • 1015 Words
    • 4 Pages
    Better Essays
    Read More
  • Good Essays

    Acct 504 Case Study 2
    • 1426 Words
    • 5 Pages

    Acct 504 Case Study 2

    Thank you for selecting our firm to provide your company with an evaluation of your organizations internal control system. Internal control systems are vital in securing your organizations assets, it will limit the risk of fraud as well as misuse of your assets. Comprehending how to separate duties among your employees will aid in improving transparency as well as keep your company financially strong.…

    • 1426 Words
    • 5 Pages
    Good Essays
    Read More
  • Powerful Essays

    Internal Control: Integrated Framework
    • 2817 Words
    • 12 Pages

    Internal Control: Integrated Framework

    Internal Control - Integrated Framework Executive Summary Senior executives have long sought ways to better control the enterprises they run. Internal controls are put in place to keep the company on course toward profitability goals and achievement of its mission, and to minimize surprises along the way. They enable management to deal with rapidly changing economic and competitive environments, shifting customer demands and priorities, and restructuring for future growth. Internal controls promote efficiency, reduce risk of asset loss, and help ensure the reliability of financial statements and compliance with laws and regulations. Because internal control serves many important purposes, there are increasing calls for better internal control systems and report cards on them. Internal control is looked upon more and more as a solution to a variety of potential problems. Internal Control Internal control means different things to different people. This causes confusion among businesspeople, legislators, regulators and others. Resulting miscommunication and different expectations cause problems within an enterprise. Problems are compounded when the term, if not clearly defined, is written into law, regulation or rule. This report deals with the needs and expectations of management and others. It defines and describes internal control to: 1. Establish a common definition serving the needs of different parties. 2. Provide a standard against which business and other entities--large or small, in the public or private sector, for profit or not--can assess their control systems and determine how to improve them. Internal control is broadly defined as a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: 1. Effectiveness and efficiency of operations. 2. Reliability of financial reporting. 3. Compliance with applicable laws and…

    • 2817 Words
    • 12 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    National Capital Trust Case Analysis
    • 1349 Words
    • 4 Pages

    National Capital Trust Case Analysis

    Internal control is a business process for assuring achievement of an organization’s objectives. Firstly, internal control plays an important role in safeguarding the organization’s assets. With carefully examination and monitor, internal control is able to discover any anomalies inside the organization, such as inventory spoilage. Moreover, internal control can help improve the efficiency and effectiveness of business processes. For example, through internal control in a manufacturing company, the manager can explore some non-value added activities. Eliminating non-value adding activities can save significant organization’s resources for better development. Additionally, internal controls prevent and detect fraud happen in the organization. Employees will less likely to perform misconduct since the rigorous internal control will find out who is conducting harmful behaviors. Furthermore, internal control improve the completeness and accuracy of accounting record, thus improves the reliability of the accounting information. This can be achieved by rigid internal audit. Lastly, internal audit can ensure that preparation of financial information on timely basis.…

    • 1349 Words
    • 4 Pages
    Powerful Essays
    Read More
  • Good Essays

    The Sarbanes-Oxley Act
    • 642 Words
    • 3 Pages

    The Sarbanes-Oxley Act

    The maintenance of internal control by management ensures that material information is not being provided for reports. This is essential when being assessed by our side auditors in compliance with Section 404 of Sox. It requires top management or audit committee and outside auditors to review on internal controls and whether or not they are adequate enough. This can be costly for entities to implement because samples of documentation, testing of internal controls, review of manual, and automated systems implemented by entity which enormous maintenance and time. Assessing internal control is design efficiency, outside auditors relate to specific accounts and relevant information in context of material mistake can prevent fraudulent financials being provided to the…

    • 642 Words
    • 3 Pages
    Good Essays
    Read More
  • Better Essays

    Xacc 280 Internal Control Research Paper
    • 1193 Words
    • 5 Pages

    Xacc 280 Internal Control Research Paper

    This paper will discuss the internal controls and how they work in business. I will shed some light on the organizations financial and business policies, process and procedures. The purpose of these internal controls is to protect the company’s resources against fraud, misappropriate funds and most important waste. A company can spend quite a bit of money that does not make the company any profit. This paper will examine all aspects if internal controls and their functions.…

    • 1193 Words
    • 5 Pages
    Better Essays
    Read More
  • Good Essays

    Accounting Information Systems Simulation Paper
    • 371 Words
    • 2 Pages

    Accounting Information Systems Simulation Paper

    Internal controls are all measures taken by an organization for the purposes of protecting its resources against waste, fraud, or inefficient use; ensuring the reliability of accounting data; securing compliance with management policies; and evaluating the performance of all employees, managers and departments within the organization. The accounting system depends upon internal control procedures to ensure the reliability of accounting data. Many internal control procedures on the other hand make use of accounting data in keeping track of assets and monitoring the performance of departments. Internal control is looked upon more and more as a solution to a variety of potential problems. The effectiveness and efficiency of operations as a technique relates to performance and profitability goals and safeguarding of resources.…

    • 371 Words
    • 2 Pages
    Good Essays
    Read More
  • Good Essays

    Acc 542 Internal Control And Risk Evaluation Paper
    • 912 Words
    • 4 Pages

    Acc 542 Internal Control And Risk Evaluation Paper

    In today’s society, internal controls are applied to support an organization 's managers to become more successfully to release the responsibilities by applying and understanding internal control concepts. Internal controls are most frequently saw as "a lot of red tape"; however, internal controls have different circumstances when confirming high moral and ethical values which should be communicated in an organization. Internal controls are essentially composed of five interrelated components which are communication and information, monitoring, control environment,…

    • 912 Words
    • 4 Pages
    Good Essays
    Read More
  • Good Essays

    Internal Controls Within LJB Company
    • 1134 Words
    • 5 Pages

    Internal Controls Within LJB Company

    From the given information, the internal control components of an effective internal control system are not as efficient as they can be. Because LBJ is trying to go public in the near future, there are some requirements that must be met in within the internal control system. It is the responsibility of the management on how important ethics are within the…

    • 1134 Words
    • 5 Pages
    Good Essays
    Read More
  • Better Essays

    Comptronix Corporation Case 4.2
    • 1087 Words
    • 5 Pages

    Comptronix Corporation Case 4.2

    The five components of internal control are the control environment, risk assessment, control activities, information and communication, and monitoring. The control environment is the awareness of the controls from the people within the organization. Risk assessment is the company’s identification, analysis, and management of risk in the preparation of the financial statements. Control activities are the company’s policies and procedures to address any potential risk. Information and communication focuses on the systems used for creation of the financial statements and the communication of the outputs. Monitoring is the process in which the organization…

    • 1087 Words
    • 5 Pages
    Better Essays
    Read More
  • Better Essays

    Acc/546 Week 1 Assignment
    • 1101 Words
    • 5 Pages

    Acc/546 Week 1 Assignment

    Secondly, the auditor needs to understand internal control and assess control risk. The risk of misstatement in the financial statements is reduced if the client has effective controls over computer operations and transaction processing. The auditor identifies internal controls and evaluates their effectiveness, a process called assessing control risk. If internal controls are considered effective, planned assessed control risk can be reduced and the amount of audit evidence to be accumulated can be significantly less than when…

    • 1101 Words
    • 5 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    The Essence of Internal Control
    • 620 Words
    • 3 Pages

    The Essence of Internal Control

    A statement on policy and procedures issues as they relate to managements views and /or findings with regard to OMB A-123 audits.…

    • 620 Words
    • 3 Pages
    Satisfactory Essays
    Read More

Related Topics