If the accounting system works as it should, the result will be reliable financial statements. However, there are numerous opportunities where breakdowns in the financial reporting system can occur. Knowing where these breakdowns can occur and knowing how and why internal controls are designed to prevent those breakdowns will help you to appreciate the role of controls and auditors in an organization.

 

Is an internal control structure really necessary? Your uncle doesn't seem to think so. He works for a regional employment staffing service and recently commented, "As long as a company hires hardworking, honest people, fraud and abusive financial reporting cases will be almost nonexistent. People with integrity will always make the right choice. In the last six months, we haven't placed anyone for employment who has been fired or let go for fraudulent activity!" A friend argues, however, that anyone presented with the right pressures can commit fraud and that opportunities must be eliminated through an effective internal control structure.

 

• Provide an example of an internal control and how it can prevent breakdown or fraud.
• In your company, what internal controls do you encounter on a regular basis? Are those controls appreciated or viewed as a nuisance that must be worked around?