...Internal Controls Internal controls are a necessary part of any company. They are comprised of all the methods and measures used by a company to one of two things. (Wetland, Kieso, & Kimmel, 2003,) They either safeguard a companies assets from things such as theft or unauthorized use, or they help to enhance the accuracy and dependability of a companies accounts and records. This second use helps to ensure that fewer errors are made wither intentional or unintentional. Without internal controls, there would be a lot of room for mistakes that could potentially destroy a company. For example, accounts could be stolen from and manipulated or a simple calculation could be missed, upsetting the entire balance of the accounts. These internal controls help to ensure that these things do not happen. In 2002, congress passed the Sarbanes-Oxley act due to the rising amount of corporate scandals in the previous years. This act is often said to be one of the most important acts passed in decades because it allows companies to focus more on internal controls and give them more attention. The act is often calls SOX for short and it puts more pressure on the executives and directors to ensure that their internal controls are reliable and are working to the best of their ability. The act requires companies to have internal controls specifically for financial accounting including auditors and frequent assessments. This act also established the Public Company Accounting Oversight Board or...
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...Annals of the University of Petroşani, Economics, 11(1), 2011, 187-196 187 INTERNAL CONTROLS IN ENSURING GOOD CORPORATE GOVERNANCE IN FINANCIAL INSTITUTIONS KOSMAS NJANIKE, MARGARET MUTENGEZANWA, FUNGAI B. GOMBARUME * ABSTRACT: This paper assessed factors that influence the internal controls in ensuring good corporate governance in financial institutions in developing economies with special reference to Zimbabwe. The research paper assessed how lack of internal controls affected good corporate governance and aimed to bring out elements of good corporate governance. It emerged that failure to effectively implement internal controls contributed significantly to poor corporate governance. The study discovered that internal control system overrides and the issue of “fact cat” directors also contributed to poor corporate governance. The study recommended that there is need for the board of directors to guarantee an organizational structure that clearly defines management responsibilities, authority and reporting relationships. There is also need to ensure that delegated responsibilities are effectively carried out to ensure compliance with internal controls of the financial institution concerned. KEY WORDS: internal controls; corporate governance; ethical behaviour. JEL CLASSIFICATION: G21, G28; G30; G38. 1. INTRODUCTION The year period December 31 2003 to December 31 2004 witnessed the collapse of a number of financial institutions in Zimbabwe. This period witnessed a...
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...Internal Controls XACC280 Internal Controls Internal controls are implemented for protection. There are two goals that are important aspects of internal controls to keep the company protected. Assuring that the company’s assets are protected is one goal of internal controls. Some examples would be: stealing, embezzlement, and misrepresentation. The next reason that internal controls are implemented would be to make sure all accounting documentation/records are being kept in the appropriate way. This is to make sure careless mistakes are not being made and to address them if they are. “The Sarbanes-Oxley Act came into force in July 2002 and introduced major changes to the regulation of corporate governance and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, and it set a number of non-negotiable deadlines for compliance. The Sarbanes-Oxley Act is arranged into eleven 'titles'. As far as compliance is concerned, the most important sections within these eleven titles are usually considered to be 302, 401, 404, 409, 802 and 906. An over-arching public company accounting board was also established by the act, which was introduced amidst a host of publicity” (2003). When the act was put into motion, its purpose was to address flaws in internal controls as they were. Its main implementation was to assure that the means a company uses to compile develop, and display financial information meets the appropriate...
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...Internal Controls Megan Mitchell March 14, 2013 XACC/280 Paul Gomez Internal Controls 2 In order to maintain a company’s security and accuracy, a company will take all related measures and measures adopted within an organization in the form of internal controls. Internal controls are an essential way to maintain conformity with other company’s, to safeguard assets from employee theft, robbery and unauthorized use, and enhance accuracy and reliability of it’s accounting records (Weygandt, Kimmel, & Kieso, 2008). Since major company’s such as WorldCom and Enron were able to commit such extreme measures of fraud, in 2002, Serbanes-Oxley Act (SOX) was passed by congress to ensure company’s enacted internal controls and required them to maintain an adequate system of internal controls (Weygandt, Kimmel, & Kieso, 2008). The SOX requires that all companies must develop sound principles of control over financial reporting, continually verify that the controls are working, and an independent auditor must attest to the level of internal controls. There should be physical, mechanical, and electronic controls so that when jobs are segregated, there are more than one opportunity for a final verification of accuracy (Weygandt, Kimmel, & Kieso, 2008). In years prior to the SOX, the heads of companies did not pay very close attention to the many individual jobs that were necessary to maintain an accurate accounting system. When a business...
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...Internal Control System Joseph Johnson Internal Control Systems ACC/544 (course) June 12, 2012 Abstract This report will question the need for an internal control system. With this report I will justify the need for the system when controls are in place with insurance and portfolio approaches. An internal control system is important to companies. Most businesses use the insurance and portfolio approaches to manage the risks that the business has within the company although other company’s use an internal control system. The following brief will describe each approach and what the benefits would be if they would use an internal control system. Current Approaches There are two approaches, as mentioned earlier, that are used with controls to prevent risks from happening within the company. These two approaches are insurance and portfolio approaches. The first approach is an insurance approach that protects the company’s investment. When a company purchases insurance it is used to protect them from a loss that may occur. Insurance is considered more of a financing tool instead of a management tool. This approach keeps the impact of the losses instead of protecting assets from the losses that come up. The portfolio approach is more structured because it provides context and helps with decision making. When using a portfolio approach it minimizes a risk while improving the investment of the company. This does not protect the investment from risk but improves...
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...SEPTEMBER 30, 2014 ACC504 INTERNAL CONTROL DR. MICHAEL ABNER PREPARED BY NELLY OYANE Table of Contents Introduction I. Internal Control Requirements II. What the Company is Doing Correct III. What the Company is Doing Incorrect Conclusion References Introduction LBJ Company is presently conducting a decision to go public or not and with that they will also be familiar with their internal controls inside their systems, particularly with regard to Accounting and Human Resources and the way it will affect them and their workers and of course the way they operate. There have been some encouraging and bad issues arise regarding their internal controls. Nevertheless, LBJ Company needs to be recognized for what they are doing right, but must also need to address matters that are harmfully affecting them and their business and will remain to damagingly impact them if they choose to go public, which will negatively drive down the cost of their shares etc. This case study will examine these matters and make recommendations for what LBJ Company can do to strengthen their internal controls. I. Internal Controls Requirements Inform the President of any new internal control requirements if the company decides to go public. Internal controls are mechanisms, policies and procedures used to decrease and control operational risk. In order to prevent employees from committing...
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...Internal Controls Attention: President/CEO The purpose of this report is to discuss internal controls and security for LJB, and compliance with current policies. In order to be receptive to recommendations and change, it is imperative that a thorough understanding of how internal controls and security play into the profit and growth of the company. Effective internal control gives reasonable assurance, not guarantee, that all business objectives will be achieved. It extends beyond the aim of ensuring that all financial reports are reliable. It includes the efficient operation and compliance with laws, regulations, policies, and contractual obligations. It requires concerted effort on an ongoing basis; businesses are now systematically documenting, testing, evaluating, and improving their internal control and security measures. Effective internal control does not necessarily cost more, it reduces costly risks of avoidable losses and business failure and enable to operate in a more safely and profitable manner. After describing the merits of internal control, the business definition of internal control; Systematic measures (such as reviews, checks and balances, methods and procedures) instituted by an organization to (1) conduct its business in an orderly and efficient manner, (2) safeguard its assets and resources, (3) deter and detect errors, fraud, and theft, (4) ensure accuracy and completeness of its accounting data, (5) produce reliable and timely financial and...
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...Internal Control and Risk Evaluation Lola Knaff ACC 542 April 22, 2013 Anita Rodriguez Internal Control and Risk Evaluation The internal control and risk evaluation aspect of accounting is crucial to protect the business’ assets and resources. In addition, for publically traded companies it is mandatory for there to be internal control procedures. “Internal control describes the policies, plans, and procedures implemented by a firm to protect its assets” (Bagranoff, 2008, p. 240). The necessary procedures are in place to ensure the validity and efficiency of the data that the users input into the Accounting Information Software (AIS). The flowcharts reveal the pattern for the accounts receivable, accounts payable, inventory process, and payroll processes. Each process will generate many levels of risk factors that can be reduced by several internal control procedures. According to Hunton, Bryant, and Bagranoff (2004), the assessment of IT risks are by the managers and auditors to determine how to apply resources (p. 51). The cost-benefit analysis is crucial to ensure that the cost of the internal control to reduce the risk does not increase the monetary value of the control. The purpose of the internal control application is to create a smooth operating procedure that does not deter effectiveness and efficiency of the data. Along with the AIS internal controls, there are other controls that will assist in creating a trustworthy working environment...
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...2011 Internal Controls Internal Controls are certain procedures that are put into place to help control the money in a business and keep track of all of the accounting, assigning different people within the workplace to keep track of things so everything turns out right in the end. The two primary goals to primary controls are to protect a company's assests and to keep all records within the business accurate and reliable. By following particular procedures wih the Sabarnes-Oxley Act this helps create a formalized standard list for all companies to follow to make sure that internal controls are being watched over closely. By contiunually making sure the controls are working and sending in outside auditors this helps with internal controls and with safeguarding a companies assets which all came from the Sabarnes-Oxley Act of 2002. Many corporations follow the Sabarnes-Oxley Act and some will not even do business with someone who does not followit because of how much they believe in it. If a company were to announce any deficiencies in internal controls they could definately see a fall in the price of stock because it could be a huge sign that something fishy is going on within the company and the accounting field. If something shows up that raises any eyebrows than people will back off of investing within the company just in case someone within the company has done something scandalous and to protect themselves. By remaining deficient in internal controls people...
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...fraudulent acts. Rationalization – The rationalization of fraudulent acts for personal justification. In order to protect a company’s assets against fraud and mitigate risk, Internal Controls must be established and adhered to. Internal controls are the policies, procedures and processes implemented by a company to create dependability and consistency in its accounting records, standardize operational efficiency, and comply with governmental standards. The following paper introduces governmental regulations, how to begin complying with them and further steps to take to increase internal controls. (Kimmel, Weygandt, & Kieso, 2009, p. 326) Evaluation and Recommendation Objective: To evaluate current internal controls adhered to by LJB Company and recommend new internal controls to satisfy mandated governmental requirements recognized by all publicly traded companies in the United States. Sarbanes Oxley Act of 2002 LJB Company is preparing to become a publicly traded company in the near future. In order to do so, there are governmental conditions that must be accomplished. Of all, the requirements of most importance are those stated in the Sarbanes Oxley Act of 2002 (SOX). Confirmed in SOX, all corporations publicly traded in the United States must maintain sufficient internal control systems that protect a company’s assets from fraud and enhance truthfulness and dependable accounting processes and are certified by external assessors. (Kimmel, Weygandt, & Kieso...
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...Randy L. Owen ACCT205-1201B-17 Principles of Accounting I AIU On-line 26 February 2012 Abstract This paper will be looking at a company in the eyes of a local CPA. It will look at the internal control system and how these procedures can make or break a company. It will look at the symptoms of a weak internal control system. It will also show the impact of a missing journal entry on the financial statement. Internal control I have been asked to teach the accounting department of ABC about the limitations of the internal control system. There has been a gross accounting error of over $1500 this year. This may be the lack of knowledge, or and oversight. You are the ones in charge of the accounting department, you have the ability to manipulate the information such that it suits your, or someone else’s needs. This will lead to cases of fraud and discourage potential investors. Either way it will hurt the company in the long run. What are internal controls you may ask; they are a system of checks and balances in plain language. The objectives of these controls are simple. They include dependable financial and operational reports, proficient and actual operations in the account department, and compliance with the laws or regulations, and policies of ABC. Who here is the department head? It is your job to set the tone of the operations. What this means is encourage and demonstrate ethical business ethics by providing structure, encouraging feedback, and...
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...Case Study 2—Internal Control Due by Sunday of Week 5, 11:59 p.m., Mountain time LJB Company, a local distributor, has asked your accounting firm to evaluate their system of internal controls because they are planning to go public in the future. The president wants to be aware of any new regulations required of his company if they go public, so he met with a colleague of yours at a local restaurant. The president of the company explained the current system of internal controls to your colleague. Your colleague has since been promoted to a tax position so she has passed on the information below so you can generate recommendations for the partner at your accounting firm to share with the president of LJB Company. Since LJB Company is a relatively lean organization, they have a lot of faith in their long-term employees. They have one accountant who serves as treasurer and controller, which streamlines many of their processes. In this dual role, he purchases all of the supplies and pays for these purchases. He also receives the checks and completes the monthly bank reconciliation. The accountant also interviews and approves of all the new hires. The accountant is so busy that the company handles petty cash a bit differently. All employees have access to the petty cash in a desk drawer and are asked to only place a note if they use any of the cash. The accountant has recently started using pre-numbered invoices and wants to buy an indelible ink machine to print their checks...
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...Internal Control FAQ What is Internal Control? Internal control is the integration of the activities, plans, attitudes, policies, and efforts of the employees of a department working together to provide reasonable assurance that the department will achieve its mission. More simply, internal control is what a department does to see that the things they want to happen willhappen…and the things they don’t want to happen won’t happen. Why are internal controls important? The overall purpose of internal control is to help a department achieve its mission and accomplish certain goals and objectives. An effective internal control system helps a department to: * Promote orderly, economical, efficient and effective operations. * Produce quality products and services consistent with the department’s mission. * Safeguard resources against loss due to waste, abuse, mismanagement, errors and fraud. * Promote adherence to statutes, regulations, bulletins and procedures. * Develop and maintain reliable financial and management data, and accurately report that data in a timely manner. What are the components of an internal control system? The Committee of Sponsoring Organizations (COSO) internal control framework identifies five inter-related components: Control Environment: The control environment, sometimes referred to as “tone at the top”, is the foundation for all other components of internal control. The control environment is influenced by management’s...
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...internal control a. What is internal control? Internal control is a process, effected by an entity’s board of directors, management and other personnel, designated to provide reasonable assurance regarding the achievement of objectives in the following three categories: * Reliability of financial reporting * Effectiveness and efficiencies of operations * Compliance with applicable laws and regulations Internal control is design to achieve management objectives in three categories. In financial reporting category, the management objectives are related to producing reliable financial reports and safeguarding assets. In the operations category, same examples of management objectives are maintaining a good business reputation, ensuring a positive return an investment, increasing market share, promoting new products innovation, and using assets effectively and efficiently. In the compliance category, the board of management objective is compliance with the regulation and law that affect the entity. The definition of internal control identifies several important concepts. Internal control provides reasonable assurance, not absolute assurance, that management objectives will be achieved. Because people operate the controls, breakdowns can occur. Internal control can help prevent and detect many errors, but it cannot guarantee that will never happen. Several limitation of internal control system prevents management from obtaining complete assurance that controls are...
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...Internal controls are functional procedures to safeguard all parts of a business, especially playing a key role in the accounting system. The quality and functionality of a business can determine if a business will succeed or fail. The typical business has many internal control standards that work for the type of company they have. Having these internal controls is not enough to help a business; the law requires companies to monitor these controls to make sure they are being followed correctly. Internal controls have the ability to make or break the goals a company may have while at the same time keeping the compliance of their staff efficient. In 2002 the Sarbanes-Oxley Act, or also known as SOX was passed after scandals became public about numerous corporations. The Sarbanes-Oxley Act was created in 2002 in order to introduce changes to the financial practice and corporate governance regulations. The main point of this act was to ensure that companies would pay attention to the internal controls. The responsibility is on the corporate executives to ensure the reliability of the internal controls that have been put in place for financial reporting. This law has made all companies and their executives liable for any inaccuracies made in the company’s financial reporting due to lack of internal controls. When a company has internal controls in place, it shows the company is responsible and that they care about the financial reporting for their company. If a company were to...
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