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Internal Control - Essay Example

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Today most organizations utilize computerized accounting systems. The employee that bares the responsibility over the design and functionality of the internal control system of a company is its comptroller. A good internal control system relies on the delegation of responsibilities to the different members of the accounting staff. Internal control systems must be constantly maintained. When designing an internal control system it is important to remember the accounting materialism principles which states that information is only useful if its benefits outweigh the costs. Training and development is often needed to educate the employees in internal control. Internal control measures are used to protect and monitor cash, account receivables, payroll, and inventory among other things. In 2002 the government of the United States passed the Sarbanes-Oxley Act (SOX). This act was a revolutionary legislation that was created to increase the confidence of investors in the stock market due to the fact that the marketplace had been flooded with accounting scandals such as Enron and WorldCom. One of the benefits of the Sarbanes-Oxley Act is that it increased the internal control requirements of public companies. ...
Based on the Sarbanes-Oxley CEOs are liable with capital punishment if fraudulent activity occur in the financial statements of a company. Companies that have inefficiencies in its control systems can a decline in the value of its common stocks. When an investor reads news regarding poor

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internal controls within a company the person is alarmed at the information. A risk adverse investor may sell off all of its stocks of a company that announces deficiencies in its internal control system. A firm that has a poor internal control system faces many risks such as potential theft of assets and fraudulent activity. The asset that thieves target the most in a company is its cash. Some techniques that companies with weak internal control systems can implement to safeguard the cash of the company are reconciliation of cash account, establishment of dual control, and control measures over petty cash. Internal control measures are tremendous tools that can increase the transparency of a company, but its implementation has its limitations. One of the limitations of internal control is that it takes money and human resources to implement. Companies that are understaffed often disregard the use of internal control because they cannot afford it. Internal controls initiatives do not work effectively if a company faces communication problems within the staff. Organizations that face morale problems and conflict in the staff often visualize the implementation of control measures as a sign of mistrust. A potential con of the use of internal controls is that these measures can be bypassed if the employees collide with each other. Human error

Summary

One of the most important business functions is accounting. Accounting deals with the recording, tracking, and monitoring of financial transactions. The end result of the accounting cycle is the preparation of financial statements. Due to the importance of accounting companies must implement internal controls in order to protect itself…
Author : kosseliane
Internal Control essay example
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