Professor Adams' Lecture Materials

LO7-01: Define what is meant by internal control and describe some key elements of an internal control system for cash receipts and disbursements.

1. What is internal control?

Internal controls represent a company's plan to: (1) encourage adherence to company policies, (2) promote operational efficiency, (3) minimize errors and theft, and (4) enhance the reliability and accuracy of accounting data.

2. What is the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act requires a company whose shares are traded on the open market to document and assess its internal controls.
Auditors are required to test the design and operating effectiveness of their clients' internal controls (example).
There is an organization called the Committee of Sponsoring Organizations (COSO) that provides a framework for designing an internal control system.

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