Executive summary
During its operation, every company can face some difficulties, connected with improper data representation, fraud or accounting irregularities. In order to avoid unpleasant consequences of such issues, every company introduces and implements internal control procedures within an internal control system that can be quite successful or not. Nevertheless, if you follow recommendations for a control system improvement, your company will flourish and avoid any problems with customers, shareholders, suppliers or government agencies.
Introduction
Have you ever considered the importance of an internal control system and what this notion presupposes? Is there any difference between control systems in different companies? Frankly speaking, any expert knows that internal control is one of the key elements of a highly efficient management performance and an integral part of any managerial control system. Nowadays, the issue of internal control systems is quite topical because of frequent national and international business scandals. In order to prevent future scandals, financial abuse and data falsification, new laws are introduced. Among them, we can observe the Sarbanes-Oxley Act, which was passed in 2002.
This law was one of very important juridical events, connected with the essential alteration of federal legislation of the USA during last sixty years. This paper makes requirements for financial and accounting reports and the process of their preparation much stricter to prevent any unpleasant and illegal practices. The adoption of this document was provoked by a range of serious scandals, connected with unfair behavior of managers of huge international corporations (SOX-online).
Generally, in accounting, internal control is created to help a company achieve its specific goals and objectives; and this phenomenon is defined as a complex of various strategies, policies and procedures, which a company’s management implements and maintains in order to provide successful achievement of financial, managerial and programmatic goals of the company.
There are five key components of an internal control system – risk assessment, environmental control, control procedures, communication, monitoring and information. Each of key elements plays an essential role in internal control as a whole that is why environmental control can be regarded as human resource management, the research of employee behavior and attitude; risk assessment presupposes a company’s ability to analyze business risks and make up feasible planning. Control procedures greatly affect such aspects of the business as information and communication, bring benefits to the company and its personnel; at the same time monitoring can be called a feedback of the internal control process.
Strong and weak points of the company’s internal control system
The company under investigation – North Point Ltd. manufactures and sells compact disks. According to the given information, the company uses raw materials manufactured by Compact Disk Pty Ltd. It is an open secret that an internal control system comprises rules and regulations, which keep business investments sound and a company safe from excessive liabilities. A control system can be regarded as any action or policy made in order to ensure a given outcome for a situation.
Having investigated the company’s accounting process and internal control system, we can state that …