Internal controls
Financial Accounting glossary · Assets: Cash, Receivables, Inventory, PP&E & Intangibles
Definition
Processes designed to provide reasonable assurance regarding reliability of financial reporting, compliance, and operational effectiveness; assessed under SOX Section 404 for public companies.
Internal controls in plain English
Internal controls are the built-in checks and routines a company uses to keep its financial reporting honest, follow the rules, and run smoothly. The goal isn't a guarantee that nothing ever goes wrong — it's 'reasonable assurance,' meaning sensible safeguards that catch most errors and fraud. A classic example is requiring two different people to approve a big payment, so no single person can quietly steal or make a costly mistake. For public companies, a U.S. law called SOX (Sarbanes-Oxley) Section 404 requires management to formally test and vouch that these controls actually work.
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