Internal Control System

The two primary goals of an internal apply frame are to safeguard assets and misrepresent resources. This action by the organization, reasonably ensure that their specific goals and objectives will be met within compliance. This system rest of policies, measures and procedures designed to assist management with defend the organization against waste, preventing and detecting fraud, inconsistencies, inadequacy, ineffectiveness, reliable and accurate accounting, evaluating performance and protecting both its tangible and intangible resources.It helps to minimize risks and they are an integral part of an organizations fiscal and business policies. Internal controls are simply just good business practices. The Sarbanes-Oxley Act was enacted on July 30, 2002. The metre was introduced and passed as a result of the then recent corporate accounting scandals by companies much(prenominal) as Enron, Tyco and Worldcomm, just to name a few. These very public scandals rocked the nation sinc e, they cost investors billions of dollars and challenged the faith that people erst had in the Americas stock markets.This new Act helped to rebuild faith in a once loosely regulated system and repair more or less(prenominal) of the damage done by such greed and deceit. Some argue that the bill has reduced Americas international competitive edge against overseas financial service providers (Wikipedia) but the bill was put in place to protect investors, shareholders and the general public resembling by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws (SOX-online. com).The Public Company invoice Oversight Board, or PCAOB, is the agency created to oversee the accounting firms that act as auditors for corporate companies. The consequences for non-compliance are fines, imprisonment, or both. If a company announces deficiencies in its internal controls, the stock of that organization would most likely fall payable to the public kno wledge and experience with this type of thing before the Sarbanes- Oxley bill was introduced. Investors assurance in the gumshoe of their stock will be negatively impacted.The negative impact can cause panic by investors, resulting in the selling of that investors share of stock. But if the company has a strong positive reputation and releases this data voluntarily then the company may save face and retain some of their shareholders trust and some shareholders may remain loyal by staying positive. One limitation of the internal control system is employing a staff large enough to accommodate the many segregated duties of one that is well organized and conception out.The mishandling of finances, under-protection of assets, human error, human deceit, illegal dealings, erroneous information, the size of the business, staff carelessness, poor belief or miss of knowledge, collusion by staff, overrides by management for individual(prenominal) gain or other motives and controls failin g to grip or flag odd transactions, are all limitations in an organizations control system (Financial Accountability Handbook, Jan. 2010). Controls that are applicable for larger companies, are not applicable in small businesses.For example, a fewer number people perform the accounting practices in small companies since they do not control the resources or the staff to accommodate segregated duties. These persons may obligate dual responsibility of operation and custody. The closing off of duties may be missing or severely limited. Below is a more detail exposition of some of these limitations. 1. Judgment The effectiveness of controls will be limited by decisions made with human judgment under pressure to conduct business based on certain information or a lack there of. . Breakdowns Even well designed internal controls can break down. Employees sometimes see instructions or simply make mistakes. Errors may also result from new technology and the complexness of computerized inf ormation systems. 3. Management Override High level personnel may override appointed policies and procedures for personal gain or advantage thus, should not be confused with management intervention, which justifies management actions to depart from prescribed policies and procedures for legitimate purposes.Collusion Control systems can be circumvented by employee collusion. Individuals acting collectively can demasculinise financial data or other management information in a manner that cannot be identified by control systems. The internal control system is designed differently within each company depending on its own needs. This allows an organization to put in place ethnical methods and procedures that best movement its practices.The Sarbanes-Oxley Act being implemented reassures stockholders and the public that they can possibly, safely invest again with a less likelihood that similar future occurrences of corporate scandals will occur. There is no sure way to have a air-tight internal control system but if a company stays hawk-eyed about staying within compliance, tying up loophole when discovered and prosecuting when necessary the problem of mishandled finances may easy become a thing of the past. Internal Control Principles . The first internal control principal is an apply establishment of responsibility by one individual. 2. The next principal is the segregation of duties where different individuals have a specific duty. 3. The following principle is the physical, mechanical, and electronic controls. This is where there are individuals, machines and computers working together. 4. The last internal control principal is independent internal verification that employs different departments to specific responsibilities.