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    Effect of Sarbanes-Oxley Act: Internal Controls

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    What are Internal Controls and their two primary goals? How did the Sarbanes-Oxley Act of 2002 affect internal controls?

    Also why would a company that announces deficiencies in its internal controls experience a fall in the price of their stock?

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    Internal Controls

    I - What are Internal Controls and Their two primary Goals and how did the Sarbanes-Oxley Act of 2002 affect Internal Controls.

    There are two types of internal controls, i.e. Preventative, and detective controls, the purpose of preventative Controls is to discourage errors or irregularities from occurring, while the purpose of detective Controls is to find errors or irregularities after they have occurred. (Example: reconciling monthly account statements).

    The primary goals of internal control systems are:

    ? To help enhance the likelihood that the objectives of the organization will be achieved

    ? Promotion of "orderly, economical, ...

    Solution Summary

    The solution discusses the effect of Sabanes-Oxley Act specifically the internal controls and primary goals.