Acct 504 Case Study 2

Topics: Internal control, Sarbanes–Oxley Act, Audit Pages: 5 (1108 words) Published: January 27, 2013
Internal Control Report

For LJB Company

Table of Contents


IPO and Internal Controls3

Successful Existing Internal Controls4

Internal Controls for Consideration4




Internal controls are vital to any company’s business and financial sustainability. Internal controls consist of measures taken by a company safeguarding against fraud, and theft. Internal controls ensure accuracy and reliability in accounting data, and secure policies within the organization. Further, internal controls evaluate all levels of performance. These are addressed with five principles of internal control: Establishment of responsibility, Segregation of duties, Documentation procedures, Physical controls, Independent internal verification, and Human resource controls.

The 2002 Sarbanes-Oxley Act stresses importance upon guidelines of necessary internal controls for any publicly traded company or corporation. There are several practices LJB Company currently have in place, these will be addressed and should be continued. Finally, steps designed to strengthen the fiscal future of LJB Company and continued growth.

IPO and Internal Controls

Strict, multi-step requirements necessary for a company going public can be daunting and intimidating. A strong game plan involving the tightening of internal control policies is often the best place to start. These essential steps leave the company with a stronger foundation with many benefits to the company and their future stockholders.

Prior to 2002 the necessary steps were not required. Congress addressed concern at growing corporate fraud with the introduction of the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley Act seeks to govern publicly traded companies and created auditing standards most specifically addressed are internal control audits. Title III and title IV specifically address internal controls.

Title III Section 302 of the Sarbanes-Oxley Act pertains to the “Corporate Responsibility for Financial Reports”. Certification of financial reports must be signed and reviewed by the CEO and CFO of the company ensuring the following have occurred: no misleading statements or omissions. The company officers must certify the design and evaluated their internal controls within ninety days of their annual and quarterly reports.

Title IV Section 404 of the Sarbanes-Oxley Act pertains to the “Management Assessment of Internal Controls”, addresses the responsibility of management for the existence of internal controls, and the evaluation of the effectiveness of them. Section 404 requires an external auditor to review the controls in place and prohibits management from certifying their internal controls if there are any weaknesses located by the external auditors report.

Successful Existing Internal Controls

Based upon information provided to us by LJB Company, there are several internal control procedures that are already in place, addressing several of the basic five principles of internal control.

LJB Company has established responsibility of duties, in having the accountant solely pick up the company paychecks. These paychecks are available in his office for pick up by employees. At the end of the day remaining checks are secured inside a safe effective use of physical control principle.

Pre-numbered invoices are effective documentation controls. The proposed idea of purchasing an indelible ink machine for printing of company checks is recommended for LJB Company. Disbursement of signed checks imprinted by a check writing machine, which can be compared to corresponding invoices, should also be implemented with the purchase of the indelible ink machine.

Internal Controls for Consideration

Segregation of duties needs to be in place. The accountant...
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