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Importance of Segregation of Duties

In: Business and Management

Submitted By aleiciac
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Segregation of Duties

Introduction

An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide consumers with a certain level of comfort in the validity of the firm’s financials. A byproduct of the years of lengthy debate has been an increased focus on the internal controls of public and private companies. Defined as the “methods put in place by a company to ensure the integrity of financial and accounting information…,” internal controls has proven to be both a lengthy and controversial topic within the accounting sector. The complexity of internal control requirements has been a topic of broad interest, and the subject of intense conversation for both accountants and business owners because of the increased time and money that is required. One of the major components of internal controls is a concept known as Segregations of Duties (SOD). Segregation of Duties is a regulatory requirement that was put into place to aid in the prevention of fraudulent financial behavior and reporting. Its main purpose is to hinder fraudulent behavior of key employees by requiring crucial functions of the business process to be performed by various people. Throughout this text there will be an exploration of the types of business risks...

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