Internal Controls Essay

1295 Words6 Pages
Internal Controls Internal controls are all of the protocol and methods by which a company or organization protects its assets and ensures the correctness and reliability of its financial and accounting records. Tight internal controls are essential to any company that desires confidence in its stockholders and clients. Recent accounting scandals at companies such as Enron and Tyco have necessitated the need for strong internal controls and accounting procedures. As a result of these accounting scandals new legislations and organizations have been developed to audit private companies and ensure that the proper controls are in place. The Sarbanes-Oxley Act of 2002 (SOX) was passed after the Enron scandal had been all over television…show more content…
SOX also increased the duties of Human Resources now requiring tracking of all degrees and certificates, proper separation of duties, and monitoring of an organizational chart (Weygandt, Kimmel and Kieso, 2008 p 344). SOX were much needed legislation that has led to numerous improvements in the accounting procedures and controls in The United States. Strong internal controls are so essential to the health of a company that if a company announced deficiencies in them they would see a devastating drop in the value of their stock as people sell and also see a drop off in sales and clients. Internal controls are necessary to safeguard assets and ensure reliable accounting procedures of an organization, its employees, its stockholders, and its clients. A company who publicly announces this will automatically lose the trust and confidence of all parties involved. Announcing that there are deficiencies in internal controls is the equivalent of saying that everyone’s files have been compromised and that their information may or may not have been stolen by an identity predator. The effects are equally devastating in both cases and evoke the same sentiment and emotion from affected parties. The limitations of internal control are reasonable assurance, the human element, and collusion. “The concept of reasonable assurance rests on the premise that the costs of establishing control procedures should not exceed their expected benefit.” (Weygandt,
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