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Assignment 2: Justification For An Internal Control System

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Assignment 2: Justification For An Internal Control System
Justification for an Internal Control System

ACC/544
April 22, 2013
Christine Errico

Justification for an Internal Control System
Over the past years many organizations have fallen because of inadequate financial reporting and ineffective controls. To overcome this dilemma, the creation of the Sarbanes Oxley Act (SOX) of 2002 requires corporations to take full control over its financial reporting and accounting by placing internal controls within its organization. Internal controls not only establish the foundation of reasonable assurance for meeting company objectives but also provide functions in achieving other objectives. These objectives are operational effectiveness and efficiency, relevant and reliable financial data, and verify law and regulation compliance. As a controller of this company one believes that internal controls are important for these areas to be successful. Although this business uses the insurance and portfolio approaches as controls to manage the association of risks with activities, one believes an internal control system would be …show more content…
The portfolio approach is an effective approach but is more reactive than preventive. Even though a business may have insurance and portfolio approaches in place these approaches are not efficient and cost-effective enough to protect the company from risks like an internal control system can. Internal control systems are unlike the insurance and portfolio approaches because these systems are proactive tools in risk management. This type of system ensures the protection of company assets through a system of policies and procedures. In addition, this system establishes reliability in financial data along with establishes compliance with laws and regulations set forth from regulations like the SOX Act. These types of systems also help to improve internal and external communication processes within a
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