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Looser

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Submitted By kristengoble
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Internal control is a controlled process that provides the assurance and the efficiency of operations and financial reporting. Internal controls are put in place by companies used to ensure the reliability of the financial information within companies and to make sure they follow the guidelines and policies throughout the organization ((Ratcliffe & Landes, 2009). The policies and guidelines in place are monitored by financial models such as, Sarbanes-Oxley Act of 2002 (SOX). SOX act section 302 requires companies to incorporate in their reports requirements such as, officers signing reports must review them first, report does not contain any untrue material statements, and the financial statements are presented fairly (Sarbanes-Oxley Act of 2002).

The five components to eliminating or reducing any internal risks are: controlling the environment, risk assessment, controlling the activities, information and communication, and monitoring ((Ratcliffe & Landes, 2009). Risk assessment involves a company identifying and analyzing any potential risks harmful to the reporting of financial statements (Ratcliffe & Landes, 2009). The internal control risks identified within the Apollo Shoes case are the accounting and revenue cycle. Specifically there were problems during the fourth quarter with overstating sales, lack of credit approval possibly leading to collection problems in the future, and errors in billing the customers possibly leading to overcharges and undercharges of the customers (Ratcliffe & Landes, 2009). The risks associated with the revenue cycle are the unauthorized rates and prices being quoted and customers who represent a credit risk for future orders (Ratcliffe & Landes, 2009). These risks could lead to the potential misstatements of the reporting for the revenue cycle and continue to result in the unearned revenue for the company.

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