Sarbanes Oxley Act an overview of Internal Control

Running head: SARBANES OXLEY ACT

Sarbanes Oxley Act an overview of Internal Control

Darlene C. Brady

Strayer University

ACC 100 – Accounting I

ACC100 024 016

Prof. Mezher
 Sarbanes Oxley Act an overview of Internal Control

Abstract

This paper will address the law concerning accounting the Government signed into law in 2002,

a law to protect public accounting. This law is popularly known as Sarbanes-Oxley ("SOX").

The law was created largely in response to the Enron, WorldCom and other companies’ scandals.

This paper will review some of the components of accounting internal control.
 Sarbanes Oxley Act an overview of Internal Control

Accounting scandals at large companies likes Enron, WorldCom and other companies

have made people aware of the limitations of internal accounting practices. Companies have

used resourceful accounting procedure for years. Some of these practices may have been

unethical and more than likely against the law. (Terrell, 2004). The public became aware of how

easy it is for companies’ executives to manipulate the accounting industry and report false

financial information. Due to these accounting scandals, the United States government passed a

law called the Sarbanes-Oxley Act (SOX) in 2002, which is mainly aim to re-establish the people

trust in accounting. The way SOX address the concern of the public is the overhaul of the

accounting profession, chief executive officer and chief financial officer, and put rule in place

that will hold the accountant, chief executive officer and chief financial officer responsible for

their companies’ financial reports. The SOX deal with alleged weaknesses in internal controls.

The new procedures will tackle companies’ capability to collect, process, and disclose financial

information that would satisfy its official reporting requirements. (Jahmani, 2008)

With the new Sarbanes-Oxley Act, there are several goals in doing an audit. One of the

most important involves discovering whether the businesses overall internal control system are

acceptable, suitable, and proficient. This is essential to perceive the accuracy and sufficiency of

the accounting, and reporting systems. The internal control system must be monitored by

internal and external audit. It is important that any problem be reported to supervisor, and that

serious deficiencies are reported to top management and the board of directors. The criticalness

of internal control programs compile of several mutual elements.

 Sarbanes Oxley Act an overview of Internal Control

Control environment, sometimes called the tone at the top of the organization, meaning

the reliability, ethical values, and proficiency of the employee. Other part of the control

environment are administration’s belief and operating style; the way management delegates

authority, responsibility and controls of the structure; and the attention and direction provided by

the board of directors. It is the base for all other elements of internal control, allowing control

and structure. (Horngren, 2008)

Risk assessment identifies and analysis significant risks to accomplish the objectives that

form the basis to determine how risks should be managed. This component should address the

risks, both internal and external, that must be evaluated. Risk assessment can determine the

magnitude or technique of risk related to a concrete situation. (Horngren, 2008)

Information system addresses the desire in the company to determine, achieve, and

disclose information to the authority people to empower them to conduct their duties.

Information systems within the businesses are essential to this component of internal control.

Internal data, as well as external circumstances, endeavors, and circumstances must be

communicated to permit management to make educated decisions for external reporting

purposes. (Horngren, 2008) The most important thing to make sure of is the employees are

being regular training in order to effectively carry out the long list of must-do’s involved

with information system.

 Sarbanes Oxley Act an overview of Internal Control

At the end of the day a business with an effective internal control method will be

guarantee the financial results that is uniform with established, objectives and goals. It will also

have internal controls that are suitable, productive, and also proficient. (Horngren, 2008)
 Sarbanes Oxley Act an overview of Internal Control

References

Horngren, C. T., Jr., W. T., & Oliver, M. S. (2008). Internal Control and Cash. Accounting,

Chapters 1 - 8 (8th Edition) (8 ed., p. 381). Alexandria, VA: Prentice Hall.

Jahmani, Y., & Dowling,, W. A. (2008). The Impact Of Sarbanes-Oxley Act. Journal of

Business & Economics Research, 6(10), 1-10. Retrieved March 8, 2010, from

http://www.cluteinstitute-onlinejournals.com/PDFs/1228.pdf

Terrell, K. P., & Terrell, R. L. (2004). External Reporting Issues. . Survey of Accounting:

Making Sense of Business (p. 501). Alexandria, VA: Prentice Hall.