ACCT 211 Notes 2/22/2017
-Internal Controls
oPolicies and procedures managers use to:
▪Protect assets
▪Ensure reliable accounting
▪Urge adherence to company policies
▪Promote efficient operations
-Sarbanes-Oxley Act (SOX)
oThe Sarbanes-Oxley Act requires managers and auditors of public companies to
document and certify the system of internal controls.
oSection 404 of SOX requires that managers document and assess the
effectiveness of all internal control processes that can impact financial reporting.
oSOX requires the Chief Financial Officer and the Chief Executive Officer to
certify the financial statements are free of material misstatements and free of
fraudulent or other illegal activities.
-Principles of Internal Controls
oInternal control principles common to all companies:
▪Establish responsibilities
▪Maintain adequate records
▪Insure assets and bond key employees
▪Separate recordkeeping from custody of assets
▪Divide responsibility for related transactions
▪Apply technological controls
▪Perform regular and independent reviews
-Technology and Internal Control
oReduced Processing Errors
oLimited Evidence of Processing
oIncreased E-Commerce
oCrucial Separation of Duties
oMore Extensive Testing of Records
oCrucial Separation of Duties
-Limitations of Internal Control
oHuman Error
▪Negligence
▪Fatigue
▪Misjudgment
▪Confusion
oHuman Fraud
▪Intent to defeat internal controls for personal gain
▪Human fraud triple-threat:
•Opportunity
•Pressure
•Rationalization
