From the course: Finance Foundations
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Understanding internal controls
- Another aspect of short-term financial management is internal controls. I admit that this seems like a boring label, internal controls, like something only accountants would care about, but internal control is the label given to the important systems in place inside a company to make sure that the company does what it's supposed to do, that it satisfies its obligations and that everything gets recorded. If you don't have a data collection system, if you don't have a paper trail, then you are not able to manage your processes at all. You may have heard of the Sarbanes-Oxley Act. This company regulation was passed in the United States in 2002 in the wake of several large financial and accounting scandals. A key provision of the Sarbanes-Oxley Act is that each publicly-traded US company must have a system of internal controls in place and the existence of these controls has to be verified by an external auditor. To repeat, internal controls make sure that companies do what they are…
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