...Internal Controls Caryn Baret 3/13/2013 Jana Howie Internal Controls 3 Internal Controls Internal controls are safeguards that a company uses to protect their financial information. Their safeguards can be universally accepted or can be unique to one company. Internal controls center around the company's accounting information system, which is the primary function used for moving financial information around a company. Internal controls help many companies to direct, monitor, and measure the effectiveness of their accounting operations. Internal controls will often focus on limiting the abuse or fraud that may be made by employees. They also provide owners and managers with reasonable assurance that all the financial statements are done right, correct and on a timely manner. Owners and managers may use the internal controls to limit the number of people who can have access to the company's information systems. The will help limit the opportunity for any abuse on this information. The owners, managers, and supervisors may take the role when enforcing the internal controls, to keep them in charge of the information system. Internal controls are usually at the organizational and transaction level of the company’s information systems. Organizational level ensures the company will follow all the standards, law and regulations...
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...MEMO To: Andrey Simonov From: Vivian Jeansonne Subject: Internal Controls and the Auditing of Internal Controls Date: March 19, 2013 _________________________________________________ The Internal Control—Integrated Framework, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), defines internal control as “a process, effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations” (Douglas). Internal controls are a very important aspect of a business which involves people at every level of an organization working together to achieve the same objectives. The three categories stated above address the different needs of a company and allow a specific focus in order for these needs to be met. The most important internal control to implement is over financial reporting. This involves preparing the financial statements so that they are presented fairly and accurately based on generally accepted accounting principles and any other financial reporting framework used by management (Landes & Ratcliffe). Fair presentation is when the accounting principles chosen by management have general acceptance and are appropriate in the circumstances. Financial statements must also reflect underlying transactions...
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...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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...Internal Auditor Blanca O Colon ACC 544 Internal Controls April 4, 2011 Master Science Accounting Daniel Stevens Internal Auditor This document has as its main objective to inform the company the reasons for hiring an internal auditor who shall have the obligation to inform their reporting through the administrative and financial management of the company in the time required. Not only should they cover financial areas within its audit, also will have the opportunity to report on performance in other areas such as information system, human resources, and customer service. This proposal to hire an internal auditor whose primary function tells exactly, the role of internal auditor as well as their tasks and considerations within the company. The Role of an Internal Auditor An internal auditor is responsible for overseeing all the financial records for his or her organization. The purpose of employing an internal auditor is to catch any accounting irregularities. The process of ensuring the integrity of the accounting and finance records within an organization is referring to as internal control. Essentially, the internal auditor is the "gatekeeper" of internal control measures because he or she is usually the one performing checks on the system. However, his or her role is the evaluation of compliances with the company policies and procedures include federal and states laws thereby protecting the business from problems that may come up during an official audit...
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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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...Chapter 1 Internal audit is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It help an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management control, and government processes. Objective- what an organization wants to achieve. Strategy- how management plans to achieve to organization’s objective. 4 types of objectives -Strategic objectives: value creation choices management makes on behalf of the organization’s stakeholders. -Operations objectives: effectiveness of and efficiency of the organization’s operations. -Reporting objectives: reliability of internal and external reporting of financial and nonfinancial information -Compliance objectives: adherence to applicable laws and regulations Governance is the process conducted by the board of directors to authorize, direct, and oversee management toward the achievement of the organization’s objectives. Risk management is the process conducted by management to understand and deal with uncertainties that could affect the organization’s ability to achieve its objectives. Control is the process conducted by management to mitigate risks to acceptable levels. Independence is the freedom from conditions that threaten objectivity or the appearance of objectivity. Objectivity is an unbiased mental attitude that allows internal auditors to perform...
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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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...Internal control plays a very important role in preventing and detecting fraud, also helps to protect the company’s resources and helps to achieve specific goals or objectives. The company, using internal control in compliance with Sarbanes-Oxley Act and regulations, looks more trustful and stable for investors. Internal control has five elements the company should consider before going public and everyone in the company has responsibility for internal control to some extend. The top managers of the organization set a “tone at the top” by making “clear that the company values integrity and that unethical activity will not be tolerated”1. The top managers review the way the personnel controls the business and how they establish policies and procedures. The top managers also have responsibility “to identify and analyze the various factors that create risk for the business and must determine how to manage these risks” . The risk management includes external and internal risks, analyzes the environment the company works in and predicts any factors that can influence business activities and profitability. It also includes right attitude, competence and monitoring of the risks to achieve stability and timely decisions. The main component of internal control is controlling activities. It helps to complete the internal control with a good communication and information system and periodical monitoring. In general control of activities includes: segregation of duties, establishment...
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...CASE STUDY #2 INTERNAL CONTROLS: WILLIAMS OIL SERVICES SCOTT SALES SERVICES HUMAN RESOURCE ASSISTANT ACCT FIN: MANAGERIAL USE, ANALYSIS PROFESSOR JENNIFER COLEMAN February 7, 2016 Naomi M. Duncan INTRODUCTION Every business has a need for (and should be mandated to implement) Internal Controls. From a mom and pop storefront to a global corporation, fraud and errors (unfortunately rears its ugly head). As defined in businessdictionary.com, Internal Control is a “systematic measure instituted by an organization to conduct its business in an orderly and efficient manner, safeguard its assets and resources, deter and detect errors, fraud and theft, ensure accuracy and completeness of its accounting data, produce reliable and timely financial and management information and ensure adherence to its policies and plans.” Internal Controls are important in the strength of any business, because it is the end result of the bottom line….PROFIT! In order to succeed, we will show how each situation has a need for compliance to run orderly, the difference in how the President currently guards his checks and the correct procedure, how easy it is steal and have errors (if there is no separation of duties) and how important it is to be accurate and complete in your data and financial reports. In this project, we will discuss the five (5) objectives of Internal Controls. It will reflect how each situation has need of either (1) proper separation of duties, (2) comparison...
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...commit 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, &...
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