Internal Controls and the Sarbanes-Oxley Act of 2002 Essay

757 Words 4 Pages
In order to be successful in business, a company must be able to track their assets. This tracking system is typically done by a bookkeeper and must be reliable in order to be effective. The way a company ensures their financial records are reliable is by setting up a system of internal controls. Internal controls allow a company to protect its assets from fraud and theft as well as ensuring records are kept accurately by reducing errors and irregularities (Keisco, Kimmel and Weygandt, 2008). Internal controls work by assigning responsibility, separating duties to provide checks and balances, hiring an independent verification agent and through the use of technology and physical controls. In many instances, internal controls are …show more content…
al., 2008).
Internal controls are regulated by the Sarbanes-Oxley Act of 2002. This act assigns responsibility for a company’s internal controls on its executives and directors (Kiesco et.al., 2008). This assignment of responsibility forces the company to use effective internal controls by making a certain group responsible. The act also established the Public Company Accounting Oversight Board which regulates the activities of auditors. Together, assigning responsibility and defining the standards of auditors, the Sarbanes-Oxley Act of 2002 helps to safeguard a company’s investments, assets and future successes by discouraging fraud and theft.
A company that follows the requirements of the act insures to investors that their reporting is accurate. However, a company whose internal controls show deficiencies, or who chooses not to follow the Sarbanes-Oxley requirements provides no insurance to investors that their reporting is accurate. This would cause investors to sell their stock and new investors to avoid the company because of the potential that reports are inaccurate. Stock prices would, in turn, suffer as confidence in the company’s financial practices and reporting is questioned.
With all the insurances provided by internal controls and Sarbanes-Oxley, a company still faces issues with accuracy in bookkeeping records and accounting. The human element required intrinsically by the…