Essay on Internal Control

Submitted By megmartrav122
Words: 660
Pages: 3

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Internal Control Internal control is the process by which management structures an organization to provide assurance that an entity operates effectively and efficiently, has a reliable financial reporting system and complies with applicable laws and regulations. Internal controls primary goals are used to protect assets and improve the accuracy of accounting records. Protecting the assets includes measures to avoid employee theft, robbery, and unauthorized use. Improving the accuracy of accounting records consists of reducing the risks of mistakes in the accounting records. Assets are the resources and possessions which allow businesses and corporations to provide goods and services to attain profits in return. The Sarbanes-Oxley Act of 2002 was passed by congress. This act has changed how companies control the business. It is now required to maintain an adequate system of internal control. The passing of this act was a result of many corporate scams. This act ensures each company is abiding the law and regulation set for an optimal internal control. The internal control consists of monitoring, control activities, information and communication, risk assessment and the control environment. This benefits both the company and employees. If a company announces deficiencies in its internal controls it would probably experience a fall in the price of its stock. To get a better understanding of why, one must have knowledge about internal controls. Internal controls need to have no deficiencies, with deficiencies the company is not running with safeguards or making the proper improvements. Stock prices will fall because of the lack of enforcement of laws and regulations. Limitations are important in a company. Although internal controls should be stressed there are expectations and limitations to how far internal controls need to go. The concept of reasonable assurance rests on the premise that the costs of establishing. The limitations that may cause conflict with internal controls are privacy. Although the company’s stock is important customers need privacy. A good example is the searching of customers because of suspicious behavior. Privacy and respect for customers is priority although stealing is also a job for internal controls. Great methods to avoid such conflict is to use hidden security cameras and store detectives to monitor customer activity, or/and install sensor equipment at exits.
Control procedures should not exceed their expected benefit. Internal controls are there to insure the security of a company. It protects assets and also is there to help improve the company’s accounting process. The Sarbanes-Oxley Act has had many effects on internal controls. It has made it even stricter to make sure companies are following laws and regulations. Although internal controls are there to protect a company, limitations may