Internal Controls - Accounting

Internal Controls are processes that enable an organization to obtain its objectives of operational efficiency and effectiveness, reliable financial financial reporting and maximum compliance with the laws, regulations and polices within the industry in which it operates. Internal controls are meant to safeguard the assets and resources of the organization through detection of any errors, fraud, and theft within the organization. The basic principles of assessing internal control systems of an organization include the board of director’s responsibility for approving strategies and policies, senior management responsibilities of implementing the strategies approved by the board and the responsibility of the board of directors and senior management to promote high ethical and integrity standards.

In 2002 Congress passed the Sarbanes-Oxley Act, this act is legislation enforced to regulate the corporate governance and financial practices. Essentially the act can force monetary markets within the United States and provide guidelines and regulations that must be adhered to. The Act was implemented in response to accounting scandals on the public sector and was created to reform the auditing and internal control aspects of accounting. Under this new act, management would have to comply and abide by the new rules and regulations under Section 404 titled “Management Assessment of Internal Controls”, it focuses on a business’s internal controls and the principles for assessing internal control. Under the new rules, management must disclose any material weakness and will be unable to conclude that the company's internal control over financial reporting is effective if there are one or more material weaknesses in such control. Furthermore, the framework on which management's evaluation is based will have to be a suitable, recognized control framework that is established by a body or group that has followed due-process procedures, including the broad distribution of the framework for public comment. These new rules implementing Section 404 of the Act will define the term "internal control