Day 47: Internal Controls Discussion

Sarbanes-Oxley Act of 2002

• often referred to as Sarbanes-Oxley or SOX
• applies only to companies whose stock is traded on public exchanges.
• purpose is to restore public confidence and trust in financial reporting of companies
• emphasizes importance of effective internal control.
• requires companies to maintain effective internal controls over the recording of transactions and the preparing of financial statements

Internal control

• procedures and processes used by a company to:
• Safeguard its assets.
• Process information accurately.
• Ensure compliance with laws and regulations.

Objectives of Internal Control are to provide reasonable assurance that:

• Assets are safeguarded and used for business purposes.
• Business information is accurate.
• Employees and managers comply with laws and regulations.

Employee Fraud

• A serious concern of internal control is preventing employee fraud.
• Employee fraud is intentional act of deceiving an employer for personal gain.

Elements of Internal Control
The three internal control objectives can be achieved by applying the five elements of internal control. These elements are as follows

• Control environment
• Risk assessment
• Control procedures
• Monitoring
• Information and communication