Question

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Required information An internal control system consists of the policies and procedures managers use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies. It can prevent avoidable losses and help managers both plan operations and monitor company and human performance. Principles of good internal control include establishing responsibilities, maintaining adequate records, insuring assets and bonding employees, separating recordkeeping from custody of assets, dividing responsibilities for related transactions, applying technological controls, and performing regular independent reviews. Knowledge Check 01 Sarbanes-Oxley Act requires each of the following: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark willl be automatically graded as incorrect.) An effective internal control ? Light penalties for violators Auditors must evaluate internal controls Auditor's work overseen by Public Accounting Board

Answer 1

Answer: An effective Internal Control

Auditors must evaluate internal controls

Auditor's work overseen by Public Accounting Board

Explanation:

The early part of the 21st century saw shocking financially improper activities by companies such as WorldCom and Enron exposed to the world. Investor Confidence was shaken and the government needed to do something to restore it.

This was why in 2002, the US Congress passed the Sarbanes-Oxley act that aimed to ensure that the actions of those companies were never repeated.

The act requires the following;

a) An effective Internal Control

The act requires that companies enact very effective Internal controls to detect financial irregularities and even went forward to make it the responsibility of the Top Executives to ensure that this is so.

b) Auditors must Evaluate Internal Controls.

Auditors had to change their auditing strategies that were deemed inefficient. They are now required to properly evaluate in-depth, the internal controls that a company adopts to be able to give an opinion on it and they do this based on the guidelines of the Public Accounting Board.

c) Auditor's work overseen by Public Accounting Board

The Public Company Accounting Oversight Board (PCAOB)  was established by the Sarbanes-Oxley Act with it's main purpose being to monitor and oversee auditors as they audit companies so that they may protect the public from false financial information. They set rules and standards that Auditors must follow and these rules in turn have to be approved by the Securities and Exchanges Commission (SEC).