Internal ControlsEssay Preview: Internal ControlsReport this essayRunning head: INTERNAL CONTROLSInternal ControlsAll companies have a need and responsibility to track their financial positions. Depending on the size of the company, those tracking systems or accounting systems, can be very simple or very complex. “An accounting system is a set of records, procedures, and equipment that routinely deals with the events affecting the financial performance and position of the entity (Shiraz Noordin, 1997).” The accounting records are kept to measure financial progress, track cash flows, sales, revenues and a myriad of other financial data. In order to ensure the accuracy and consistency of the accounting system another system needs to be implemented. This other system is the internal control system.
The integrity of corporations financial records is extremely important for shareholders and stakeholders both internal and external. Internal controls provide a way to ensure that integrity. Investors look at financial statements in order to decide when and how much to invest in a company. Since the recent corporate scandals such as TYCO and Enron the accuracy of a companys financials has gained a heightened sense of importance. Most companies now report their internal control and auditing systems in their financial statements.
The most common and effective internal controls are internal audits and establishing and following policies and procedures. However, selecting the appropriate personnel to conduct the audits and enforce the policies and procedures and then segregating those duties to specialists increases the effectiveness of those internal controls. Other effective controls include training in ethics and corporate codes of conduct. Proctor and Gamble instituted a self assessment program to evaluate the effectiveness of their internal controls. More and more companies are finding new ways to secure the effectiveness of their internal systems to raise the level of public confidence in their organizations. The most important factor in all of the internal control systems is the relationship with ethics.
Internal controls and ethics must work in conjunction with each other to truly be effective. Ethics involves honesty, avoidance of conflicts of interest, proper disclosure of financial transactions and integrity. The public demands adhering to these standards when a corporation conducts business. As previously mentioned, investors rely on a corporations ethical standards for financial reporting. The more confidence investors have in the financial information they receive the better the decision they can make on investing their funds. Those funds come from many sources and affect many different people. Ethical standards are not laws per say, but rather rules made by the company that are designed to prevent the company from wrongdoing. Some examples of these rules are proper disclosures of properties and assets, compliance with laws, proper and timely filings and
s, and ethical questions and guidelines on reporting of assets.
For a company to be ethical, it must follow ethical standards. All employees who engage in unethical financial and financial management practices have ethical obligations. These obligations must not contradict that of an effective CEO.
This document covers:
All current or former employees of the company. These employees may seek to influence corporate policy making from the time they take office until the time they retire. The current or former CEO must also be well qualified for the management of the company. The company must ensure that its current and former executives do not become involved in decisions other than those in the business.
In a general sense, a CEO is an independent group of individuals who have responsibility for their own business operations. These individuals are often highly qualified to handle specific business matters and should not be allowed to use the company as a vehicle to interfere in their business as a result. The company should consider a number of factors in determining the extent to which it is concerned with the management of its business, including whether, if at all, it has control over specific internal issues, such as the timing of performance or the way in which the company conducts business, as well as how aggressively a business is engaged at certain moments. Other factors may also include the company’s history and business strategies, the length of these business cycles, and other matters.
This document allows corporate executives and executive personnel to speak to shareholders in an unbiased, professional manner. It states generally that each company should consider its role as an ethical auditor and that any ethical questions must be asked according to the corporate ethics standards. The company that has an ethical relationship with a member of the board must also consider that its members may be acting in a way that could endanger the company’s business. If no such conflict of interest exists, or some part of a company is known about the ethical question.
This document provides guidance to executives on who’s best to consult with. It also outlines the criteria used to review information on ethical issues in current or former management. It then sets and identifies which employees, or individuals on a company’s leadership team, have a level of ethical competence on a given topic.
This document provides guidance about when to take action concerning ethical questions. It also provides guidelines for evaluating whether the company’s actions should lead to more ethical decisions and how to address ethical questions.
The general outline of the guide can be seen HERE. You can learn more here.
This document provides an introduction to many of the elements of good management. It also establishes some elements of legal, civil and policy implications for a group of people within a company working for specific corporations, for which there is no clear set minimum standard, such as those in the guidelines.
This document lays out the steps necessary to meet the ethical standards of a company’s business. It also describes how to best evaluate such matters.
In the business of managing assets, in other words, by way of rules and procedures, the law enforcement aspect of managing a financial account is usually dealt with by having a group of professional bankers conduct an investigation into the matters the bank has just discovered about.
The legal and civil aspects of managing a financial account are usually dealt with by managing a company’s laws and regulations.
The definition of a fair dealing partner is by law defined by the law of the countries where that business is located