Improving Internal Controls Over Inventory With Radio Frequency Identification Technology

Abstract

Radio frequency identification (RFID) is a rapid growing technology that is transforming the way organizations track inventory and other tangible assets. When a company adopts RFID technology, it attaches tags to inventory items or other assets. These tags can be used to locate these items by using radio signals. The Committee of Sponsoring Organizations (COSO) established three objectives of an effective internal control system. Under COSO, a good internal control system should promote reliable financial reporting, the effectiveness and efficiency of operations, and compliance with laws and regulations. The implementation of RFID technology to track inventory can have a significant impact on accomplishing these objectives. Accountants, auditors and management should be familiar with RFID technology and understand the impact of RFID deployment on a company’s internal control structure. The purpose of this paper is to summarize the basics of RFID technology and examine how RFID technology can improve a company’s internal control over inventory. The advantages and disadvantages of RFID technology will also be summarized.