I. Introduction
a. Overview of Paper
This paper will first take a brief look into what internal controls and the Sarbanes Oxley Act are. Then it will proceed to show the relationship, or interrelatedness, of the two. It will then give an International perspective and possible future of the Act, as felt by the author and finally sum up with a brief conclusion of the author's thoughts on the Act as a whole. Afterwards the reader should have a general understanding of the concepts of internal controls and the Sarbanes Oxley Act as well as important factors of them both.
II. Internal Control Systems
a. What is an Internal Control System and What is its Purpose.
Internal control over financial reporting has always been a major area in the governance of an organization, and this importance has been magnified in recent years. Before one is able to understand this importance one must first understand what an internal control is and what it does. An internal control is a series of procedures and policies that have been designed to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. (Chiappetta, 262)
Most internal controls can be classified as preventive or detective. Preventive controls are designed to discourage errors or irregularities. An example of a prevenitive control is a computer application which checks validity of the information entered, i.e preventing the entry of an invalid account number. Detective controls, on the other hand, are designed to identify an error or irregularity after it has occurred. A manager reviewing phone bills to detect imp ...