Question

Discuss the impact of Sarbanes-Oxley on a company’s internal controls. Be sure to define internal controls and discuss the basic principles for assessing internal controls.

Answer 1

The Sarbanes-Oxley Act (SOX) has had a significant impact on a company's internal controls. Internal controls refer to the policies and procedures implemented by a company to safeguard its assets, ensure accurate financial reporting, and comply with laws and regulations. The basic principles for assessing internal controls include the control environment, risk assessment, control activities, information and communication, and monitoring activities.

Step-by-step explanation:

The Sarbanes-Oxley Act (SOX) has had a significant impact on a company's internal controls. Internal controls refer to the policies and procedures implemented by a company to safeguard its assets, ensure accurate financial reporting, and comply with laws and regulations.

The basic principles for assessing internal controls include:

1. Control Environment: This refers to the overall attitude and actions of management regarding internal controls.
2. Risk Assessment: Companies need to identify and assess potential risks that could impact their financial reporting.
3. Control Activities: Companies should establish specific policies and procedures to mitigate identified risks.
4. Information & Communication: Effective internal controls require continuous and open communication between employees and management.
5. Monitoring Activities: Regular monitoring and evaluation of internal controls are needed to ensure their ongoing effectiveness.