Assess the validity of how the accuracy of accounting records is enhanced by the integrity of internal controls.

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Ashley Kannan | Middle School Teacher | (Level 3) Distinguished Educator

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I think that there is much in way of validity in the statement.  Accountancy records are only as relevant as the integrity of internal controls that sanction and authorize them.  If a company lacks these controls or these institutional checks, than financial records have no real worth or measure of income generated.  I think that one of the best examples of this is the Enron Corporation scandal.  Part of where Enron challenged the sensibility of responsible financial planning was in its use of "mark- to- market" accounting practices.  In this scheme of planning, financial and accounting records were developed to reflect what potential earnings would be and pass them off for what they are.  For example, when Enron signed a 20 year contract with Blockbuster Video, mark- to- market accounting practices enabled them to use the 20 year projected profits of the deal as part of their projected profit for that year.  Enron CEO Jeffrey Skilling authorized the use and practice of this accounting measure, ensuring that there was no internal check or impediment to it.  In this, one sees how internal controls are not only vital to but give credence to the integrity and accuracy of accounting records.  Without an authentic set of internal controls, companies can generate whatever profit or number set they wish to generate with any metric used and the stockholder or public will not recognize these calculations as inflated or inauthentic.

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