CMA PD Series:
Internal Controls for Small Business Accounting Systems
More than ever, the importance of internal controls is being escalated, seemingly on a daily basis. From large enterprises seeking compliance with provisions of Sarbanes‐Oxley to entrepreneurs seeking to grow their businesses, internal controls have taken on an increased level of significance in businesses of all sizes.
For small businesses, maintaining an effective system of internal controls presents a significant challenge. Implementing many of the theoretical concepts surrounding internal controls – such as segregation of duties – may not be practical or even possible in some cases. Consequently, the current internal control structure of many small businesses fosters an environment in which too much risk is present. This, coupled with the presence of computerized accounting software, can often lead to disastrous results for small business owners and managers.
Learning Objectives
Internal Controls for Small Business Accounting Systems
More than ever, the importance of internal controls is being escalated, seemingly on a daily basis. From large enterprises seeking compliance with provisions of Sarbanes‐Oxley to entrepreneurs seeking to grow their businesses, internal controls have taken on an increased level of significance in businesses of all sizes.
For small businesses, maintaining an effective system of internal controls presents a significant challenge. Implementing many of the theoretical concepts surrounding internal controls – such as segregation of duties – may not be practical or even possible in some cases. Consequently, the current internal control structure of many small businesses fosters an environment in which too much risk is present. This, coupled with the presence of computerized accounting software, can often lead to disastrous results for small business owners and managers.
Learning Objectives
- Cite internal control fundamentals, including definitions and concepts, types of internal control activities, and the need for internal controls
- Recognize common small business control deficiencies and issues, including concentration of ownership, inadequate segregation of duties, and lack of formal accounting education by owners and employees, and list five key risk areas for small businesses
- Identify the differences between accounting and administrative controls and describe the objectives and common deficiencies of small business accounting systems
- Describe the purpose of controls and list examples of common general controls in small businesses
- Identify relevant internal control procedures over revenue and cash in small businesses
- Recognize key internal control procedures over purchasing, payables, and payroll
- Identify relevant internal control procedures over inventory, production, and fixed assets
- Define alternative control procedures and describe their significance in small businesses<
