Benefits of Internal Controls

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Internal Controls
Internal controls are measures that are an essential part of the business and financial procedures and policies of a company. These controls help to enhance the accuracy of accounting records, reliable financial reporting, compliance with the applicable laws and regulations, and efficient operations by reducing the risk of unintentional mistakes, intentional mistakes, and misrepresentations (Weygandt, Kimmel, & Kieso, 2008). Internal controls also assist with safeguarding the assets of a company from employee unauthorized use, theft, and robbery.
The 2002 Sarbanes-Oxley Act changed the way companies do business. This act put in place guidelines to help strengthen the weaknesses in the internal controls of companies (Weygandt, Kimmel, & Kieso, 2008). The act requires companies to implement internal control provisions to meet the requirements of the SOX act which help to minimize the occurrence of unethical behavior and corporate fraud. The SOX act also includes reporting requirements for companies that help ensure proper revenue recognition.
A company that announces deficiencies in its internal controls would most likely experience a fall in the price of its stocks because this could be an indication of either mistakes or misrepresentations in its accounting practices and leads to the belief that financial statements released earlier are different than reported. The announcement of deficiencies causes a lack of faith in the operations of the company which could cause the company’s stock to drop immediately, while investors begin to establish the extent of the damage.
There are some possible limitations in the efficiency of internal controls. Some specific limitations can consist of human factors or system omissio...

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...is that of the store manager or supervisor who at the end of the shift verifies the accuracy of the cashier’s cash register drawer. Someone in a higher level of management may verify that the store manager performed the check of the cash register drawer. When discrepancies are found they should be reported to a level of management that is able to take the appropriate corrective action.
Internal controls are used much more today than in times past due to the fraud and unethical behavior that occurred at companies such as Enron. Internal controls help companies to avoid major issues and achieve goals. Two of the main goals of internal controls consist of safeguarding assets from unauthorized use by employees and helping to enhance the accuracy of accounting records. These goals are vitally important for a company to help avoid unethical behavior and corporate fraud.

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