Essay about Xacc/280 Week 8 Assignment Internal Controls

1002 Words May 10th, 2013 5 Pages
Internal Controls


There are many rules companies must follow whenever documenting financial information or any other data which is gather during any business transactions. In order for said companies to report financial information internal controls have to be put in place as companies have to adhere to certain laws and regulations. Internal controls can be defined as a process which companies follow in order to ensure all financial reporting is done in a reliable and lawful manner. Some think of it as a system which works within a system as it plays a major role on the success of a company’s accounting system. At the organizational level, internal control objectives relate to the reliability of financial
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It clearly states the responsibilities a company and its executives have when it comes to all financial reports. Furthermore it gives the company clearly stated consequences if they choose to falsify reports or mislead investors or the public of their financial conditions. It is necessary for a company to maintain effective internal controls over their financial reporting so that they can produce financial reports that are reliable and prevent financial fraud. If a company is unable to maintain effective internal controls, confidence and trust of investors will be affected. As a consequence, companies would begin to see a drop in their stock prices. If good internal controls are in place, companies will safeguard from unethical behavior and mistakes which are not allowed in financial statement reporting. A company’s financial reports are looked over very carefully inside and out before an investor will even consider buying stock. The stock prices of companies that disclosed material weakness in ICOFR experienced declines of 5% to 10%.

There are several limitations which hinder the effectiveness of the internal controls; these limitations can result from lapses in the process and include system omissions, human factors, resource constraints or a lack of system flexibility. Effective internal control implies the organization generates reliable financial reporting and substantially complies with the laws and regulations that

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