Justification for an Internal Control System

Justification for an internal control system

Julie Strange

University of Phoenix

ACC/544 Internal Control Systems

Christina Yang

October 3, 2011

Justification for an Internal Control System

An internal Control system is responsibility of the Controller to analyze company performance in operations, compliance, and reporting as well as aid management in the development of budgets and goals (McCarthy & Flynn, 2004, p. 265). Internal Control system is also responsibility to analyze and manage risks the company may encounter. To perform these tasks controllers and company financial officers establish internal controls. A system of internal controls ensures preparation reliable financial statements, compliance with financial regulations, reduce risks, and identify, and achieve short and long-term goals. Management uses internal controls to adapt to economic changes (AICPA, 2011, p. 2). Insurance and portfolio theory are approaches to managing and analyzing risk and play an important part in an internal control system.

Internal Control Systems

An internal control system is composed of five interrelated components, and they are as followed: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring. The control environment is the companies fundamental values and directives, risk assessment is the identification and analysis of possible material misstatements, control activities are the policies and procedures used to identify and manage risks, information and communication involves the processing and distribution of information needed to meet company objectives, and monitoring “assesses the quality of the system’s performance over time” (AICPA, 2011, p. 6). The components are important to developing a framework of internal controls that, although not a guarantee, assist management in achieving objectives, reliable financial reporting, and compliance with regulations (AICPA, 2011, p 3)....