Explain how the understanding of internal control for a public company differs from that for a private entity in accordance with Generally Accepted Auditing Standards, (GAAS).

Evaluating internal controls | Business & Finance homework help

The understanding of internal control for a public company differs from that of a private entity in accordance with Generally Accepted Auditing Standards (GAAS). Public companies are subject to heightened scrutiny due to their status as publicly traded entities, and thus must adhere to stricter guidelines when it comes to the design and implementation of their internal control systems.

For instance, public companies must be compliant with Sarbanes-Oxley Act (SOX) which includes provisions such as implementing strong oversight & monitoring procedures for top financial positions , establishing controls over financial reporting , separating responsibilities between accounting & audit functions within the organization . This helps ensure accurate disclosure & prevent insider trading activities . Additionally , these regulations demand greater transparency via external auditing processes than what would likely be required by a private entity .

In addition, public companies have more stringent requirements when it comes to documentation such as creating proper records or reports detailing all transactions ; filing periodic disclosures outlining changes in financial condition ; presenting information fairly & accurately ; providing investors with detailed explanations of any significant findings discovered through their external audits etc. All this serves not only to protect shareholders but also help maintain market confidence in the company’s operations.

Ultimately, while both public & private entities need robust internal control systems in place – due to the heightened risk associated with investing in public companies they are subject to different standards which must be met in order remain compliant.