US FIN 324 - Internal Controls Paper

Essay by micblackUniversity, Master'sA-, May 2006

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Internal controls are in place to reduce or mitigate operational risks within an organization. In the past, most organizations adopted policies, procedures and budgets to assist their organization to run smoothly, however, since the large organizational scandals that have taken place at Enron, Tyco International and WorldCom and companies like them, the government has stepped in and created legislation under the Sarbanes-Oxley Act of 2002 which included a regulation for internal controls. Good internal controls are important and valuable to an organization and its shareholders.

Internal controls are important to an organization because they help an organization to meet the organizational objective, to maintain the company budget and correctly allocate funds where needed to maintain or grow the organization. They help companies meet any applicable laws/processes as outlined by the government and accounting practices and to ensure accurate and timely reporting. These internal controls can be extremely effective.

Effective internal control techniques are an integral part of the systems used by each department to operate and conduct business on a daily basis.

Auditing is important to the internal control effectiveness and provides a check system to verify that the processes and procedures are met according to their design. An Internal Auditor normally reviews the internal control documentation and the systems and reports these results to management. In addition, determines if the process has been conducted in accordance with the guidelines.

There are many different types of effective internal controls. Of those are; the Sarbanes-Oxley legislation, organizational structure or clear management reporting lines for each employee, adequate operating policies and procedures, procedure manuals, a clear segregation of duties and the restricting of access to critical records and forms, periodic internal compliance audits with reports to management, and budgets.

Budgets are an effective way to control the business. Because organizations manage large...