Internal Controls

Internal control is the process a company or business does to protect and prevent themselves from any fraudulent activity and any mistakes in the accounting process. Internal control has two primary responsibilities. The first is to guard against loss of assets because of theft, accidental destruction, and errors. A guarantee must exist transactions related to assets have been properly processed and that appropriate physical handling and control over assets exists. Second is to ensure financial reporting and compliance with applicable laws and regulations.
The Sarbanes-Oxley Act of 2002 was put into place to force companies to pay more attention to internal controls. “It came as a result of the corporate financial scandals involving Enron, WorldCom, and Global crossing. Provisions of the Sarbanes Oxley Act detail criminal and civil penalties for noncompliance, certification of internal auditing, and increased financial disclosure. The Sarbanes Oxley Act requires all financial reports to include an Internal Control Report” (Sarbanes Oxley 101). This shows that a company financial data is accurate and sufficient controls are in place to safeguard financial data.
A company that announces deficiencies in its internal control will probably experience a fall in the price of stock because investors and stockholders will be at risk of losing money and assets. A company that has weak internal control people will not want to invest in or buy stock because the company will experience financial losses.
I consider collusion, lack of training, and lack of management to support to be some limitations of internal controls. For example, if a person does not know the proper procedures for internal controls or is not explained the importance of internal controls they will not follow them. If a cashier did not count money that they received or gave back to customers there cash register will be short and they will negatively affect a company’s finances. Collusion is where two or...