Internal Controls Essay Example | Topics and Well Written Essays - 750 words

Internal Controls - Essay Example tiveness and the efficiency of the firm’s operation deals with the basic goals of the business such as business performance, generation of profits and the safety measures taken on the company’s resources. Consistency of financial reports calls for preparation of consistent financial statements. Additionally, there is requirement for preparation of short-term and strong financial statements. The Sarbanes-Oxley Act of 2002 is a requirement by the US Corporation to establish and keep satisfactory systems of internal control. Since its establishment, the Act ensures that the organization’s management and board of directors maintain consistent and effective internal controls. The Sarbanes-Oxley Act of 2002 also deals with the weaknesses existing in internal controls in the corporate sector. The enactment of the Act has seen the improvement of internal controls in companies which have agreed to comply with the Act (Rich 2009). Research on the effectiveness of the Sarbanes-Oxley Act of 2002 shows that there has been clear understanding of the controls and their effectiveness. According to Warren et al (2013), the enactment of Sarbanes-Oxley Act of 2002 has seen a reduction in fraud cases that were common before 2002. The enactment has ensured confidence to the investors, creditors and stockholders. The maintenance of internal controls as required by the act is a way of ensuring fraud cases are minimized and avoidance of deceptive financial statements. However, companies have realized that compliance to the act is costly but they have also found that benefits of application of the act in internal control is far much more that the cost. Deficiencies in internal controls in any corporate is costly because of unclear financial reports. Organizations with deficiencies in internal controls have to incur high capital investments and poor stock prices. Despite the high cost of complying with the Sarbanes-Oxley Act of 2002, the corporate will in future reap the benefits.