Internal Controls

Internal Controls

Internal controls are a very important part of a company's financial and business policies along with their procedures. Internal controls consist of protecting resources, securing compliance with policies of the company, making sure there is accurate and reliable data in accounting as well as with operations, and evaluating the performances within the company. All of a company's resources are monitored, measured, and directed by internal controls. They keep a company's assets safe from fraud and theft as well as enhancing accuracy for its accounting records by simply reducing any and all errors rather they be intentional or unintentional. It is a wise decision for a business to have internal controls that focus on protecting the company's assets and manages all of their resources along with providing the promise of reliable/operational and financial data, efficient and effective operations, and complying with all state and federal laws and internal policies.

The Sarbanes-Oxley Act was signed into law in July of 2002 and was made by Senator Paul Sarbanes and Representative Michael Oxley. This act was made of eleven titles that set non-negotiable deadlines for compliance by businesses. The reason for this act was due to an outbreak of scandals and bankruptcies in 2002 within major companies like Enron, Tyco International, Adelphia, and WorldCom. With these companies losing billions of dollars congress wanted to make sure that they protected the investors by improving that accuracy and reliability of all corporate disclosures. The law made standards for corporate accountability and changed the way that corporate boards and executives interacted with each other along with how they interacted with auditors and it stated penalties for any kind of misbehavior by imprisonment, fines, and other types of penalties (Ernst & Young, 2012).

A deficiency within any organization shows poor management and major losses. Investors always want a return on their investment and they should get one if the company is managing correctly. Any issues that may be presented can leave a company vulnerable to many different things like a loss of money, a lack of trust, and a loss of profitability which would in-turn cause a huge loss with stock prices.

It does not matter how well a company's internal controls are made in the fact that they can only provide reasonable assurance that the objectives that are set will be achieved like they should be. Reasonable assurance means understanding that there is a low risk of mistakes not being detected or prevented in a timely manner. Even though this is not absolute assurance, it still offers a high level of assurance. One example of this would be a change to a system that already exists which could pose a risk of weakening the underlying controls that are already set into place. Potential limitations of internal controls