Within this paper I summarize the key features, and results, of research conducted to support the development, design, and implementation of an internal control system at a startup small business. These efforts were conducted for an Honors Thesis/Creative Project for Barrett, the Honors College at Arizona State University. The research revolved around deciding which financial policies, procedures, and safeguards could be useful in creating an internal control system for small businesses. In addition to academic research, I developed an “Internal Control Questionnaire” for use as a ‘jumping off point’ in conversations about a business’ existing accounting system. This questionnaire is applicable across many industries, covering the major topics which every small business/startup should consider.

The questionnaire was then used in conjunction with two interviews of small business owners. The interviews covered both the overall financial status of their business and their business’ pre-existing accounting system. The feedback received during these interviews was subsequently used to provide the business owners with eleven recommendations ranging from the implementation of new policies to verification of existing internal controls.

Finally, I summarize my findings, both academic and real-world, conveying that many small business owners do not implement formal internal control systems. I also discuss why the business owners, in this specific circumstance, did not yet implement the aforementioned eleven suggestions.

The relative performance evaluation (RPE) hypothesis holds that executive compensation should not depend on uncontrollable exogenous shocks. Nevertheless, prior studies often find limited empirical support for this hypothesis in part because it is difficult to identify peers exposed to the same exogenous shocks. I propose a new way to identify peers and to test the RPE hypothesis in the context of a specific shock. In particular, I select peers based on the sensitivity of their stock returns to exchange rate fluctuations. I find evidence that firms respond to large exchange rate movements by ex post adjusting their peer selection to include peers with similar exchange rate risk exposure. Moreover, after allowing for ex post peer group adjustments, I find a much stronger support for the RPE hypothesis than most of prior work.