Write A 750 To 1050 Word Paper In APA Format Including Citat

Write A 750 To 1050 Word Paper In Apa Format Including Citations An

Write a 750- to 1,050-word paper in APA format, including citations and references, summarizing your ideas about internal controls. Include the following: • An introduction to internal controls, explaining in your own words the two primary goals of internal control • A description of how the Sarbanes-Oxley Act of 2002 has affected internal controls • An explanation of why a company that announces deficiencies in its internal controls would probably experience a fall in the price of its stock • A synopsis of what you consider to be the limitations of internal controls – Cite specific examples. • A conclusion that summarizes your main points • A comparison of the internal control principles of (1) establishing responsibility, (2) using physical, mechanical, and electronic controls, (3) segregation of duties, and (4) independent internal verification.

Paper For Above instruction

Internal controls are fundamental mechanisms implemented within organizations to ensure the integrity of financial reporting, operational efficiency, and compliance with laws and regulations. Their primary objectives are twofold: first, to safeguard assets from theft, fraud, and unauthorized use; second, to ensure the accuracy and reliability of accounting data to support informed decision-making (COSO, 2013). Effective internal controls serve as a backbone for organizational integrity and are crucial for maintaining stakeholders' trust and regulatory compliance.

Historically, internal controls have evolved significantly, especially after legislative responses to financial scandals. The Sarbanes-Oxley Act of 2002 (SOX) marked a watershed moment by imposing stringent requirements on public companies to improve internal control measures. SOX mandated management to assess and report on the effectiveness of internal controls over financial reporting (ICFR). It also established the Public Company Accounting Oversight Board (PCAOB) to oversee external audits. The impact of SOX has been profound, leading to the development of comprehensive internal control frameworks, increased transparency, and enhanced accountability. Companies now devote more resources to establishing robust internal control systems because of the compliance obligations and the heightened scrutiny from regulators and investors (Weirich & Gramling, 2015).

When a company announces deficiencies in its internal controls, it often triggers a decline in its stock price. This reaction can be attributed to investors' concerns about the potential for financial misstatements, fraud, and regulatory penalties. Internal control deficiencies cast doubt on the company's financial health, thus eroding investor confidence. Moreover, such disclosures can lead to increased scrutiny from regulators, potential lawsuits, and a decrease in the company's market reputation. The immediate market response typically involves a sell-off of shares, leading to a drop in stock valuation, as investors weigh the risks of possible future financial restatements or penalties (Albrecht, 2014).

Despite their importance, internal controls have limitations that can compromise their effectiveness. For example, internal controls cannot eliminate all errors or fraud, especially when employees intentionally circumvent procedures. A notable limitation is collusion among employees, which can undermine segregation of duties and other control measures. For instance, if an accountant colludes with a cashier, they might manipulate financial data without detection, despite strong internal procedures (Moeller, 2013). Additionally, internal controls can be costly to implement and maintain, and their effectiveness is often contingent upon management's commitment and employee compliance.

Another limitation pertains to the possibility of control degradation over time. As organizations grow and evolve, existing controls may become outdated or insufficient, necessitating continuous reviews and updates. Furthermore, technological controls rely heavily on the integrity of electronic systems; cybersecurity threats pose significant risks that can bypass traditional controls altogether. For example, a malware attack might enable unauthorized access to financial data, rendering electronic controls ineffective (Bateman et al., 2014). These limitations suggest that internal controls, although vital, should be complemented with other risk management and oversight mechanisms.

In conclusion, internal controls are essential for promoting organizational integrity, safeguarding assets, and ensuring reliable financial reporting. The Sarbanes-Oxley Act has significantly strengthened these controls but has also introduced challenges and costs. Recognizing the limitations of internal controls is critical to their effective implementation, particularly concerning collusion, evolving technologies, and cost considerations. A thorough understanding of internal control principles, including establishing responsibility, utilizing physical, mechanical, and electronic controls, segregation of duties, and independent internal verification, enables organizations to develop more resilient control systems that adapt to changing environments and risks.

References

• Albrecht, W. S. (2014). Internal control and fraud prevention. Journal of Accounting and Public Policy, 33(4), 344–352.
• Bateman, T. S., Snell, S. A., & Konopaske, R. (2014). Management: Leading & collaborating in a competitive world. McGraw-Hill Education.
• Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal Control—Integrated Framework. COSO.
• Moeller, R. R. (2013). Brink's modern internal controls: Management's guide. John Wiley & Sons.
• Weirich, T. R., & Gramling, A. A. (2015). Auditing & assurance services: A systematic approach. Cengage Learning.