Why is internal control important for companies – and for students – to understand?

Copyright: radiantskies / 123RF Stock Photo

An article in Accounting Today from September 7, 2017, has the headline “Internal control weaknesses correlate with financial fraud.” Three accounting researchers* have found that “…the incidence of fraud disclosures at companies previously found by auditors to have material weaknesses in their internal controls is approximately 80 to 90 percent greater than companies on average, depending on how it was measured.”

The article is a quick read on this research study and has some good information to convey to students when explaining why we cover internal control in introductory financial accounting. I wanted to share it here on the blog because this Accounting Today article is a quick read and relevant to what we are teaching in the introductory courses.

You can also get to the Accounting Today article by visiting https://www.accountingtoday.com/news/sarbanes-oxley-internal-control-weaknesses-correlate-with-financial-fraud

*The researchers are Matthew Ege of Texas A&M University and Dain C. Donelson and John M. McInnis of the University of Texas at Austin.