In auditing, internal control refers to a process where the organization is assured of its objectives through a process that involves financial reporting and compliance with the law. Internal control of audit is a way that an organization can assess its risks. The Sarbanes-Oxley Act was established as a call for internal control of audits by investors to ensure that companies come clean in their financial operations ( Schroeder, 2015) . There is an exception that can be made so as companies can be allowed to have an exclusion from activities in the year of acquisition.
The advantage that comes with internal control audits is that it aims to improve market efficiency because it helps the investors in becoming confident in believing what a company discloses in terms of internal control on its financial report. Investors can demand assurance on internal control of audits because they are hopeful of improvement in information quality or because the management has made a revelation that an internal control audit has not included acquired operations.
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In conclusion, it is realized that investors can make an adverse reaction upon the revelation that there was an exclusion made in the report provided by the company. The effect of this can be of a significant impact, especially in cases where there are larger acquisitions.
References
Schroeder, J. H. (2015). The impact of audit completeness and quality on earnings announcement GAAP disclosures. The Accounting Review , 91 (2), 677-705.
