What is the purpose of annually asserting on the effectiveness of a company's internal controls?

The purpose of annually asserting on the effectiveness of a company's internal controls is primarily to enhance financial reporting accuracy. Internal controls are processes designed to ensure the integrity of financial and accounting information, which directly affects the reliability of financial reporting. By evaluating and asserting the effectiveness of these controls, a company can identify weaknesses or deficiencies that could result in errors or fraud, leading to misstatements in financial reports.

The assertion process typically involves management reviewing and testing the internal controls and then formally attesting to their adequacy. This practice is crucial for maintaining accountability, fostering trust among stakeholders, and complying with regulatory requirements, such as those set forth by the Sarbanes-Oxley Act for publicly traded companies. Accurate financial reporting is essential for effective decision-making by management, investors, and other stakeholders, reinforcing the significance of this assertion.

While improving employee satisfaction, ensuring strategic alignment, and increasing market share are important business goals, they are not the primary focus or outcome of asserting the effectiveness of internal controls. These goals typically pertain to broader organizational strategies rather than the specific aim of ensuring accurate financial reporting through effective internal controls.