In class lecture, we know how important of internal control such as establish rules and policies for employees to follow, help company prevent fraud and theft, and help company reduce errors which will save money and protect company’s reputations.
The Sarbanes-Oxley Act issues the important that make public company maintain internal control when it comes to their financial statement. This information is very useful for investors and proves the integrity of a company's financial data and the management of it.
Key Objectives of Internal Control
The main objective of internal control is to set up an organizational structure where there are checks and balances among departments as part of business process management and they include:
Reliability is the main reason for setting up a structure of internal control. Internal control structure is set up so as to make sure that monetary transactions carried out by the company are in sync with the operational activities of the company. Internal control is of utmost importance as it ensures that money is not stolen, lost, or there are no errors in depositing money in accounts.
Confirming to Regulations is following rules set by the government require huge investments, especially The Sarbanes-Oxley Act of 2002. so that the organization follows the rules applicable, thereby avoiding legal consequences.
Avoid Wastage in Internal control helps avoiding wastage of precious resources, besides increasing efficiency. Efficiency is one of the most important factors for an organization to maintain competitiveness and in the process maximize profits.
Safety of Material and Information
Internal controls are very important to maintain safety measures, be it physical material or confidential information in an organization. There are set rules in an organization, which helps to maintain safe working conditions, thereby increasing productivity, and in the process profits. This aspect of internal control is very important, especially in banks and financial institutions, which keep valuable assets in areas where employees work every day.
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By creating internal controls, small business owners establish protocols and procedures their staff and consultants must follow. Small business owners inform their employees of these protocols and expect that they follow them as they perform their day-to-day work duties. These established protocols help bring order and cohesiveness to companies, as everyone knows what's expected, as outlined in the internal controls.
Prevent Fraud and Theft
Establishing internal controls can help companies prevent or reduce fraud and theft within their organizations. Internal controls can include activities such as reconciling bank statements and internal audit reviews, which…