Internal Controls



Introduction

This assignment discusses internal controls related to accounting records and risk management. The study is divided into three parts. The first part introduces on perspectives of internal records and its two primary objects. It also highlights comparison among varying principles of internal controls. The second part explains affected internal controls of Sarbanes-Oxley Act of 2002 with fall in stock prices due to deficiencies in internal controls of any company. It provides a synopsis of limitations for internal control. The last section concludes with main summary on discussed topic.

Internal Controls & Purposes

Internal control is an accounting system that promotes effectiveness of company's structure to preserve assets and avoid fraud or error. These controls are vital to ensure the integrity and risk measurement of accounting records and financial assets respectively. Operating method and rigorous monitoring helps to reduce inadvertent errors. Law firms work with on-site professionals and enterprises to mitigate fraudulent errors that heavily cost law firms an additional exposure (Feng & McVay, 2009). The two primary objectives of enforcing internal controls include the establishment of protocols for consultants and staff and segregation of duties for checks and balances.

Principles of Internal Controls

Large companies and small enterprises are liable to follow fundamental principles of internal control. It is a requirement that serves as a medium for assets protection and accounting records. The first principle assigns responsibility and authority towards competency and knowledgeable staffs for the evaluation of internal controls. The second principle ensure about security (Feng & McVay, 2009). Physical security of paper documentation, electronic data, employees and assets are fundamental requirements. It also includes mechanical and electronic controls that should be preventive in nature. The third principle maximizes segregation of duties to mitigate unintentional and intentional errors that include separation of transaction authority and operational responsibility. It also includes accounting function and custody of assets. The fourth principle is related but contrary to a second principle. It ensures that process, and task works can be verified by other through the segregation of furies. Surprise verification from managers is one such example (Feng & McVay, 2009).

Description

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act (Sarbox or SOX) enacted on July 30, 2002 is a federal law of United States that provides enhanced standards for al management, public company boards, and public accounting firms of the United States. The requirement of legislation dramatically improved the compliance of internal control over financial reporting structure according ...