Question

Describe why you think it is important for external stakeholders to be able to have access to a company’s financial statements. Consider who “external stakeholders” may be and provide some examples. Why is an adequate environment and system of internal control important for an organization in order to produce reliable financial statements? Find an example of an organization that does not have strong internal control. (You can search to find examples or use personal experience, or both.) Describe what you think contributes to the organization’s internal control weaknesses. Include your thoughts about the importance of every employee’s contribution to the control environment.

Answer 1

Stakeholders are the one who have their stake in the company. Either they can be the employees of the company, or people at top management or stockholders, or media or people thinking to invest in the company.

These all have their interests in knowing about the financial postion of the company. This is because they have invested their money in the company or thinking to invest. Media and all other people are having right to bring the actual information of the company to the people. Also some government institutions are interested in knowing the financial position of the company to understand that company is working properly or not.

So, these are all the group of people who need to have the correct knowledge about the financial position of the company which can be known from its financial statements and reports. Aoz these stakeholders must have access to company's financial statements. This enhaces their decision and frames a picture for the organization.

Wrong financial statements can mislead the stakeholders and hence lead them in taking wrong decisions. So its very important that financial statements released are accurate

In making appropriate financial statements, a big role is played by the environment of a business and it's system of internal controls. Both when are accurate can add to producing a correct financial report. As employees abd accoutants would be bound to work according to rules and policies and if any mistake is being donez a proper internal control system can easily detect it and then it can be corrected.

For example , let's take one company, "Figs pvt Ltd", where there is no rules and ethics. And the top management is itself busy doing fraudsvsol the time. Then the same culture will be followed by its juniors and thus more and more employee wound indulge in the same. And as all aree doing some such activities, so no one is going to stop the other. Therefore ethics and adequate environment with strong internal controls is important in any organization.

The factors contributing to internal control weaknesses are poor work culture in company , unethical behaviour of employees and no strict laws being framed. Also the management is not very serious regarding its business environment beceuse of which such weaknesses occur in the organization.

In every organisation, it is the employee, whether be at a higher position or lower is responsible for creating an ethicsl environment in the business and to maintaining a control in the environment. If employees are not true to their work, this would lead to building weaknesses in the environment of business. Thus it is very important that each and every employee contribute to the control environment in a business.