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Internal Controls Of Acocunting Essay

919 words - 4 pages

Internal controls are a company’s effort to protect its assets from unauthorized use, robbery, embezzlement, and employee theft (Weygandt, Kimmel, & Kieso, 2008). Internal controls improve the reliability and accuracy of the accounting records by reducing mistakes and irregularities whether done purposefully or unintentionally. The principles of internal control are establishing responsibility, using physical, mechanical, and electronic controls, segregation of duties, and independent internal verification (Weygandt, Kimmel, & Kieso, 2008).
The principles of internal control establishes responsibility by assigning one employee to a specific task so a company can easily monitor record ...view middle of the document...

Conducting the verifications without prior notice assures that employees are staying accurate and honest in their record keeping. Employees who are independent of the person responsible for the information will make the verification, and discrepancies and exceptions are reported to management so they may take the appropriate steps for correction (Weygandt, Kimmel, & Kieso, 2008). Companies should also conduct background checks of all employees and rotate their duties every few months. All of these efforts along with the principles of internal control work together to prevent misappropriation of funds by any one employee.
The Sarbanes-Oxley Act of 2002 states that all publically traded corporations in the United States are required to implement adequate internal control systems, and are legally obligated to maintain them within federal regulations or be subject to fines and imprisonment of company officers (Weygandt, Kimmel, & Kieso, 2008). The Sarbanes-Oxley Act of 2002 places more responsibilities on corporate executives and the board of directors to guarantee that the internal controls of a company are reliable and effective (Weygandt, Kimmel, & Kieso, 2008). Companies must also develop sound principles of control over financial reporting and continually verify that these controls are working. The Sarbanes-Oxley Act of 2002 also requires that independent outside auditors attest to the level of internal control of the company (Weygandt, Kimmel, & Kieso, 2008).
A company that announces deficiencies in its internal controls might experience a fall in the price of its stock because internal controls protect against employee theft and provide protection against manipulation of accounting numbers (Weygandt, Kimmel, & Kieso, 2008). Many investors have little confidence that a company with poor internal controls has accurate financial statements, and choose not invest in that company (Weygandt, Kimmel, & Kieso, 2008). Lack of investors will cause stock prices to suffer.
Limitations on internal controls include theft prevention methods, employee carelessness, apathy, exhaustion, or collusion (Weygandt, Kimmel, & Kieso, 2008). A...

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