Internal Controls Over Financial Reporting (ICFR) is an important component in fostering confidence in a company’s financial reporting, and ultimately, trust in our capital markets. Former SEC Chief Accountant Wesley Bricker (SEC Charges Four Public Companies With Longstanding ICFR Failures. SEC. 2019.) is quoted as saying, “Adequate internal controls are the first line of defense in detecting and preventing material errors or fraud in financial reporting. . . When internal control deficiencies are left unaddressed, financial reporting quality can suffer.”

Explain the concepts underlying an effective system of internal controls and its purpose in the overall financial reporting system. Include in your discussion the role of management and the external auditor in ensuring that internal controls are operating as intended.