Requirement of the law Paper Example

The Sarbanes-Oxley Act has increased the importance of internal too all employees in a company because of stricter requirements from the corporate executives and board of directors compared with the requirements before the law. One of the requirements is the need to develop reliable and effective internal control and additional requirement for outside auditors to attest to said effectiveness or reliability of control (Phillips, Libby and Libby, 2005b).

Any move to demand greater responsibility from the upper management will eventually be felt by all of the employees in the organization because every employee will surely have to contribute to compliance with said requirement of the law in one way or the other or one may get fired. Answer to Question number 2. The segregation of duties has something to do with separating two functions which could be a source of possible anomaly because of human nature to commit abuse when the opportunity will allow so. This could be applied in the case of the works of an accountant or bookkeeper and that of a cashier.

Putting the custodial and bookkeeping functions in one person would cause latter to fail to record cash receipt or disbursement for personal gain due to the belief of the absence check and balance principle (Whittington & Pany, 1995). Another application of segregation of duty is avoiding to make a single person to assume as payroll accountant and cashier at the same time. If these two functions are combined, the payroll accountant or clerk could overstate his or her salary and even those of other employees through connivance and while allowing him or her to pay bloated salaries without fear of being detected.

This practice of combining functions could be a potential source of corruption because of the possible abuse of power and absence of checking between the two functions. Answer to Question number 3. Generally, it is better to keep a record using perpetual inventory system if the purpose is better internal control because of the constant recording of every transaction whether there is receipt or parting away with an inventory item.

As found in the case of Wal-Mart, the use perpetual inventory system has resulted to better efficiencies (Phillips, Libby and Libby, 2005a). This constant or perpetual recording and monitoring could not be found under the periodic inventory system. However, companies use the periodic inventory system rather than perpetual inventory system in case of voluminous but not high-value inventory items. The justification is based on the cost-benefit principle where using the perpetual inventory would cost more than the expected benefit.