Improving Internal Controls Over Inventory With Radio Frequency Identification Technology

Abstract

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