Internal Controls

Internal Controls

The University of Phoenix (Axia)

XACC/280 Financial Accounting Concepts and Principles

Renee’ Baker

April 3, 2011

Internal Controls.

Internal controls are a certain system that includes actions and methods with emphasizing organization’s security and intention to protect its assets and keep the accounting process trustworthy and precise (Weygandt, Kimmel, Kieso, 2008). Protecting a company’s assets is necessary because of the danger resulting from robberies or even employee theft. Improving or keeping the accounting process and records correct is an important factor also because of the risk of unintentional mistakes and intentional inaccuracy.

Prior to 2002, companies were determining their own systems of internal control that could vary in intensiveness and sufficiency. However, after a few wide scandals like at Enron or Tyco, which involved deceitful and highly dishonest accounting practices, the government passed Sarbanes-Oxley Act of 2002 (SOX), which required organizations and businesses to follow and maintain a satisfactory internal control of a certain standard. Later, the Public Company Accounting Oversight Board was established which works on creating certain standards for auditors and regulates their activities. According to Weygandt, Kimmel, & Kieso (2008), the motto at time of passing SOX was ‘Better get those controls under control’, which was one of the most significant and important laws passed in decades. The main effect on internal controls was obligating top corporate executives and directors to ensure their proper functions and determine their efficiency. From one side, each organization is required to have a strong and valid internal control for financial reporting, periodically verifying that it functions properly. From the other side, established systems of internal control should be tested and verified by an external sovereign assessor. Overall, the SOX Act sensibly improved the situation...