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How Does the Sarbanes Oxley Act Relate to Internal Controls?

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How Does the Sarbanes Oxley Act Relate to Internal Controls?

Strayer University

December 3, 2010

In order to have a full understanding of what Internal Controls are and how they relate to The Sarbanes Oxley Act, I decided to do a little research on Internal Controls, first. (Horngren, Harrison, and Oliver, 2009, pp. 380-384), defines Internal Controls as an organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policy, promote operational efficiency, and ensure accurate and reliable accounting records. A business can achieve its internal control objectives by applying five components. Monitoring of controls, this can done by internal auditors or external auditors. Information system allows the organization to keep track of assets and measure profits and losses. Control procedures are designed to ensure that the business’s goals are achieved. Risk assessment is an assessment that help the company identify its amount of risk. All companies need internal control procedures. Companies should employ employees that are competent, reliable, and ethical. A business with good internal controls should never overlook important duties. All employees should have certain responsibilities and understand those responsibilities. There should also be separation of duties, this will limit fraud and promote accuracy of the accounting records. No one person should be responsible for every aspect of a job. This will cause mistakes to happen. Audits are also a very important internal control procedure so are documents, and electronic devices.

What is The Sarbanes-Oxley Act? The Sarbanes-Oxley Act was passed by congress in 2002 with the aim of preventing an assortment of ills related to corporate finance and reporting. The Enron and WorldCom scandals had a great deal to do with The...

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