--- title: Strong Controls Over Financial Reporting Are Essential description: Discover how effective financial reporting controls can enhance accuracy, reduce fraud risk, and build stakeholder trust for private businesses. image: https://www.brinkersimpson.com/hubfs/5-Oct-31-2024-02-00-45-4241-AM.png --- [610-544-5900](tel:+16105445900) • [contact@brinkersimpson.com](mailto:contact@brinkersimpson.com) [Client Portal ](https://www.securefirmportal.com/Account/Login/4874) [Pay Now ](https://www.brinkersimpson.com/pay-online) [Brinker Simpson ](https://www.brinkersimpson.com/) - [ Services ](https://www.brinkersimpson.com/services) - [ Strategic Advisory ](https://www.brinkersimpson.com/services/strategic-advisory) - [ Accounting Support ](https://www.brinkersimpson.com/services/accounting-support) - [ Tax Services ](https://www.brinkersimpson.com/services/tax) - [ Audit and Assurance ](https://www.brinkersimpson.com/services/audit-assurance) - [ Transaction Advisory ](https://www.brinkersimpson.com/services/transaction-advisory) - [ Valuation Services ](https://www.brinkersimpson.com/services/valuation) - [ Risk Advisory ](https://www.brinkersimpson.com/services/risk-advisory) - [ Peer Review Services ](https://www.brinkersimpson.com/services/peer-review) - [ About ](https://www.brinkersimpson.com/about) - [ People ](https://www.brinkersimpson.com/about/team) - [ Community ](https://www.brinkersimpson.com/about/community) - [ Industries ](https://www.brinkersimpson.com/industries) - Resources - [ Articles ](https://www.brinkersimpson.com/resources/articles) - [ Newsletter ](https://www.brinkersimpson.com/resources/newsletter) - [ Careers ](https://www.brinkersimpson.com/careers) [ Let's Connect ](https://www.brinkersimpson.com/contact) - [ Services ](https://www.brinkersimpson.com/services) - [ Strategic Advisory ](https://www.brinkersimpson.com/services/strategic-advisory) - [ Accounting Support ](https://www.brinkersimpson.com/services/accounting-support) - [ Tax Services ](https://www.brinkersimpson.com/services/tax) - [ Audit and Assurance ](https://www.brinkersimpson.com/services/audit-assurance) - [ Transaction Advisory ](https://www.brinkersimpson.com/services/transaction-advisory) - [ Valuation Services ](https://www.brinkersimpson.com/services/valuation) - [ Risk Advisory ](https://www.brinkersimpson.com/services/risk-advisory) - [ Peer Review Services ](https://www.brinkersimpson.com/services/peer-review) - [ About ](https://www.brinkersimpson.com/about) - [ People ](https://www.brinkersimpson.com/about/team) - [ Community ](https://www.brinkersimpson.com/about/community) - [ Industries ](https://www.brinkersimpson.com/industries) - Resources - [ Articles ](https://www.brinkersimpson.com/resources/articles) - [ Newsletter ](https://www.brinkersimpson.com/resources/newsletter) - [ Careers ](https://www.brinkersimpson.com/careers) [ Let's Connect ](https://www.brinkersimpson.com/contact) [ 610-544-5900 ](tel:+16105445900) [ contact@brinkersimpson.com ](mailto:contact@brinkersimpson.com) [Client Portal ](https://www.securefirmportal.com/Account/Login/4874) [Pay Now ](https://www.brinkersimpson.com/pay-online) October 31, 2024 # Strong Controls Over Financial Reporting Are Essential by: [Brinker Simpson & Company](https://www.brinkersimpson.com/blog/author/brinker-simpson-company) 3 Minute Read Public companies are required by the Securities and Exchange Commission (SEC) to evaluate and report on their internal controls over financial reporting using a recognized control framework. However, private companies also benefit from implementing checks and balances to ensure the accuracy of their financial statements and reduce the risk of fraud. In addition, transparent reporting on these controls can increase confidence among lenders, investors, and other stakeholders in the company's financial results. ## Develop an Auditor's Mindset The American Institute of Certified Public Accountants (AICPA) defines control activities as "steps put in place by the entity to ensure that financial transactions are correctly recorded and reported." AICPA auditing standards also require external auditors to evaluate a client's internal controls as part of their audit risk assessment. Auditors often focus on three key control features: 1. **Physical Restrictions**: Employees should have access only to assets necessary to perform their duties. Locks, alarms, and other security measures help protect valuable tangible assets, such as petty cash, inventory, and equipment. Intangible assets — including customer lists, lease agreements, patents, and financial data — should be safeguarded with passwords, access logs, and legal documentation. 2. **Account Reconciliation**: Management should regularly verify and reconcile account balances. For example, bank statements should be reconciled monthly, and inventory counts should be conducted periodically. Interim financial reports, such as weekly scorecards or quarterly financial statements, are useful tools to keep management informed. However, these reports are valuable only if management reviews them and investigates anomalies. Supervisory oversight may include observation, test counts, inquiry, and task replication. 3. **Job Descriptions**: Clear job descriptions and proper segregation of duties are critical controls. For instance, the person responsible for receiving customer payments should not also approve write-offs. Additionally, checks above a certain dollar amount should require dual signatures. Policies should also mandate job segregation, duplication of responsibilities, and mandatory vacations to reduce risk. ## Auditors of private companies Auditors of private companies tailor their audit programs to address potential risks of material misstatement. However, unless specifically engaged to perform an internal control study, auditors aren't required to identify control deficiencies in detail. ## Disclosures About the Control System ## Audited financial statements may Audited financial statements may include footnote disclosures outlining the company's control environment, such as policies and procedures for risk management, compliance, and governance. These disclosures provide transparency and help build trust with stakeholders by offering insights into how the company ensures accurate financial reporting. It's important to recognize that evaluating internal controls is an ongoing process, not a one-time assessment. Even though private companies aren't required to adhere to SEC regulations, a robust system of checks and balances is essential for achieving business goals. ## Internal controls may be ## We Can Help Internal controls may be difficult for company insiders to evaluate objectively. Our auditors have extensive experience with control systems, both strong and weak, and can help assess the effectiveness of your controls. Contact us for more information. [Fraud and Forensic](https://www.brinkersimpson.com/blog/topic/fraud-and-forensic), [Accounting and Financial Operations](https://www.brinkersimpson.com/blog/topic/accounting-and-financial-operations), [Audit and Assurance](https://www.brinkersimpson.com/blog/topic/audit-and-assurance) ### Table of Contents Previous Article [ Help Ensure Your Partnership or LLC Complies with Tax Law ](https://www.brinkersimpson.com/blog/help-ensure-your-partnership-or-llc-complies-with-tax-law) ## Related Articles ![Before You Buy: Red Flags in an M&A Target’s Financials](https://www.brinkersimpson.com/hs-fs/hubfs/5-Jan-27-2026-05-27-47-0753-PM.png?width=500&height=500&name=5-Jan-27-2026-05-27-47-0753-PM.png) February 16, 2026 ### [ Before You Buy: Red Flags in an M&A Target’s Financials ](https://www.brinkersimpson.com/blog/before-you-buy-red-flags-in-an-ma-targets-financials) Do your company’s 2026 strategic plans include a business acquisition? Whether you already have your eye on a target or are still weighing options, plan now for extensive financial due diligence. To ... Fraud and Forensic • Business Advisory • Transactions and M&A • Tax Compliance • Accounting and Financial Operations ![Four Ways to Read and Strengthen Your Balance Sheet](https://www.brinkersimpson.com/hs-fs/hubfs/4-Jan-27-2026-05-27-47-5952-PM.png?width=500&height=500&name=4-Jan-27-2026-05-27-47-5952-PM.png) February 19, 2026 ### [ Four Ways to Read and Strengthen Your Balance Sheet ](https://www.brinkersimpson.com/blog/four-ways-to-read-and-strengthen-your-balance-sheet) The balance sheet shows your company’s financial condition — its assets vs. liabilities — at a specific point in time. However, the balance sheet is more than a static report. It can also serve as a ... Fraud and Forensic • Business Advisory • Valuation • Guide • Audit and Assurance ![Strategies to Prevent Abuse of Friends & Family Discount](https://www.brinkersimpson.com/hs-fs/hubfs/4-Oct-28-2025-06-24-59-8582-PM.png?width=500&height=500&name=4-Oct-28-2025-06-24-59-8582-PM.png) February 13, 2026 ### [ Strategies to Prevent Abuse of Friends & Family Discount ](https://www.brinkersimpson.com/blog/strategies-to-prevent-abuse-of-friends-family-discount) Many small businesses offer discounts to employees, friends, family, or loyal customers as a gesture of appreciation. While these programs can strengthen relationships and build goodwill, they can ... Fraud and Forensic • Business Advisory • Valuation **Strategic Advisory** [Business Advisory](https://www.brinkersimpson.com/services/strategic-advisory/business-advisory) [Succession Planning](https://www.brinkersimpson.com/services/strategic-advisory/succession-planning) [Financial Process and Controls](https://www.brinkersimpson.com/services/strategic-advisory/financial-process-controls) **Accounting Support** [CFO and Controller Services](https://www.brinkersimpson.com/services/accounting-support/cfo-controller-services) [Accounting and Bookkeeping](https://www.brinkersimpson.com/services/accounting-support/accounting-bookkeeping) [Financial Planning and Analysis](https://www.brinkersimpson.com/services/accounting-support/financial-planning-analysis) **Tax Services** [Business Tax Services](https://www.brinkersimpson.com/services/tax/business-tax) [Individual Tax Services](https://www.brinkersimpson.com/services/tax/individual-tax) [Tax Controversy and Defense](https://www.brinkersimpson.com/services/tax/tax-controversy-defense) **Audit and Assurance** [Financial Statement Audits](https://www.brinkersimpson.com/services/audit-assurance/financial-statement-audits) [Agreed Upon Procedures](https://www.brinkersimpson.com/services/audit-assurance/agreed-upon-procedures) **Transaction Advisory** [Due Diligence](https://www.brinkersimpson.com/services/transaction-advisory/due-diligence) [Post-Acquisition Services](https://www.brinkersimpson.com/services/transaction-advisory/post-acquisition) [Mergers and Acquisitions](https://www.brinkersimpson.com/services/transaction-advisory/mergers-acquisitions) [Transaction Consulting](https://www.brinkersimpson.com/services/transaction-advisory/transaction-consulting) **Valuation Services** [Business Valuations](https://www.brinkersimpson.com/services/valuation/business-valuations) [Quality of Earnings](https://www.brinkersimpson.com/services/valuation/quality-of-earnings) [Buy-Sell Agreements](https://www.brinkersimpson.com/services/valuation/buy-sell-agreements) [Forecasts and Projections](https://www.brinkersimpson.com/services/valuation/forecasts-projections) [Calculation of Value](https://www.brinkersimpson.com/services/valuation/calculation-of-value) **Risk Advisory** [Forensic Accounting](https://www.brinkersimpson.com/services/risk-advisory/forensic-accounting) [Fraud Investigation](https://www.brinkersimpson.com/services/risk-advisory/fraud-investigation) [Internal Investigation](https://www.brinkersimpson.com/services/risk-advisory/internal-investigation) [Shareholder Disputes](https://www.brinkersimpson.com/services/risk-advisory/shareholder-disputes) [Economic Damages](https://www.brinkersimpson.com/services/risk-advisory/economic-damages) [White Collar Criminal Tax Defense](https://www.brinkersimpson.com/services/risk-advisory/white-collar-tax-defense) **Peer Review Services** [System and Engagement Reviews](https://www.brinkersimpson.com/services/peer-review/system-engagement-reviews) [Outsourced Quality Control Review](https://www.brinkersimpson.com/services/peer-review/outsourced-quality-control) © Brinker Simpson. All rights reserved.| [Privacy Policy](https://www.brinkersimpson.com/privacy-policy)| [Terms of Service](https://www.brinkersimpson.com/terms-and-conditions) ```json { "@context" : "https://schema.org", "@id" : "", "@type" : "LocalBusiness", "address" : { "@type" : "PostalAddress", "addressCountry" : "US", "addressLocality" : "Media", "addressRegion" : "PA", "postalCode" : "19063", "streetAddress" : "1400 N Providence Rd, Rosetree Building 2, Suite 2000E" }, "image" : "https://www.brinkersimpson.com/hubfs/BrinkerSimpson%20_June_2020_Folder/Images/brinkersimpson-logo-gray-white-59.webp", "name" : "Brinker Simpson", "priceRange" : "$$", "telephone" : "610.544.5900", "url" : "https://www.brinkersimpson.com/" } ```