1) Discuss the importance of internal controls for accounting transactions and reports. In
addition, students will also be able to describe why business ethics is an essential element
in effective accounting and financial management.
Internal controls are such necessary controls designed and implemented by the management to
provide a true and fair view of the accounting transactions and reports prepared by the
management. Internal control includes all of the processes and procedures that management puts
in place to help make sure that its assets are protected and that company activities are conducted
in accordance with the organization’s policies and procedures (Guide to Internal Control Over
Financial Reporting) .In the absence of adequate internal controls management is in a position
that it can manipulate the financials results to achieve its objectives, which can be either to
understate or to overstate its profit for the period. Further, internal controls are also implemented
at the department level so that department’s head cannot exploit their position for instance in
purchasing department quotations are obtained from two to three different suppliers so that the
purchase manager cannot take kick back by buying at a higher rate as compared to the market
rate. Further, in the purchase department there is also segregation of duties so that purchase
manager has to take approval from his immediate supervisor before purchasing and when the
goods are delivered to the company these are received by the store keeper who compares the
goods received with the order made to the supplier. Business ethics is an essential element in
accounting and financial management because financial managers are in position to exploit their
powers and if they don’t take ethics into consideration it will result in financial fraud and
personal use of company’s assets. Almost all accounting bodies have published their code of
conduct which are required to be followed by its members.
Reference:
http://www.thecaq.org/docs/reports-and-publications/caq_icfr_042513.pdf?sfvrsn=2
