Businesses today are required to follow set guidelines and regulations when it comes to keeping and reporting business transactions. The goal of these guidelines and regulations is to ensure the accuracy of a business accounting reports and to also make sure that company assets are not misappropriated or misused by its employees. Internal controls within a company fall under various categories; in this paper I will discuss the establishment of responsibility, physical, mechanical, and electronic controls, segregation of duties, and independent internal verification. In addition to internal controls I will also discuss acts of Congress that have paved the way for the current internal controls, and the limitations of internal controls.
…show more content…
The segregation of duties control ensures that one employee does not have access to all of the documents and records needed to steal funds or merchandise from the company. A sales clerk should not have access to the cash receipts needed to make correct accounting records, if they did the employee could simply fudge the numbers and the records would be inaccurate. Independent internal verification is in place to ensure that the financial records are verified by employees within the company, this measure helps with accuracy of accounting as well as making sure that theft is not happening. These internal controls are now in place because of a piece of legislation that was passed in 2002 known as the Sarbanes-Oxley Act.
The Sarbanes-Oxley act of 2002 was passed because many corporate scandals kept arising in the public sector; these scandals damaged investor trust and confidence in the company as well as causing many investors to lose large amounts of money because of the faulty accounting practices. The Sarbanes-Oxley act passed by Congress forces corporations to not only put in place internal controls but also holds company executives and boards of directors accountable for faulty accounting and reporting. The Public Company Accounting Oversight Board (PCAOB) is another result of the Sarbanes-Oxley act, the PCAOB is responsible for setting auditing standards and also regulates auditing