Internal Control System

The two primary goals of an internal guard schema are to safeguard assets and manage resources. This action by the organization, evenhandedly ensure that their specific goals and objectives will be met within compliance. This corpse lie dget of policies, measures and procedures designed to assist focal point with protecting the organization a get togetherst waste, preventing and detecting fraud, inconsistencies, inadequacy, ineffectiveness, safe and accurate score, evaluating effectance and protecting both its tangible and intangible resources.It helps to minimize risks and they are an integral part of an organizations financial and business concern policies. Internal go throughs are simply just good business practices. The Sarbanes-Oxley turn was enacted on July 30, 2002. The bill was introduced and passed as a leave of the then young corporate accounting scandals by companies much(prenominal) as Enron, Tyco and Worldcomm, just to come upon a few. These very public scandals rocked the nation since, they cost commitors billions of dollars and challenged the faith that tidy sum once had in the Americas stock markets.This new spiel helped to rebuild faith in a once loosely regulate system and repair some of the damage done by such greed and deceit. Some argue that the bill has reduced Americas international combative edge a take a shitst overseas financial service providers (Wikipedia) but the bill was prescribe in place to protect investors, shareholders and the general public alike by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws (SOX-online. com).The familiar Company Accounting 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 guild announces deficiencies in its internal minces, the stock of that organization would most likely dis mount due to the public knowledge and experience with this type of thing beforehand the Sarbanes- Oxley bill was introduced. Investors assurance in the safety 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 go with has a significant positive reputation and releases this information voluntarily then the company whitethorn save face and retain some of their shareholders trust and some shareholders whitethorn remain loyal by staying positive. One limitation of the internal control system is employing a staff large enough to accommodate the umteen segregated duties of one that is well organized and thought out.The mishandling of finances, under-protection of assets, clement error, compassionate deceit, illegal dealings, erroneous information, the size of the business, staff carelessness, poor judgment or lack of knowledge, collusion by staff, overrides by management f or personal gain or other motives and controls failing to capture or flag uneven 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 have the resources or the staff to accommodate segregated duties. These persons may have dual indebtedness of operation and custody. The isolation of duties may be missing or heavily limited. Below is a more detail description of some of these limitations. 1. psyche 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 all the same well designed internal controls can break down. Employees sometimes interpret instructions or simply make mistakes. Errors may also resul t from new technology and the complexity of computerized information systems. 3. Management Override high level personnel may override prescribed 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 alter financial selective information or other management information in a appearance that cannot be identified by control systems. The internal control system is designed differently within every company depending on its own needs. This allows an organization to put in place ethnical methods and procedures that best equip 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 vigilant about staying within compliance, tying up loophole when notice and prosecuting when necessary the problem of mishandled finances may slowly become a thing of the past. Internal Control Principles . The first internal control pencil lead is an applied establishment of responsibility by one individual. 2. The next pencil lead is the segregation of duties where different individuals have a specific duty. 3. The following rationale 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.