Keller Graduate School of Management
Prepared by: Samara Ellison
Prepared for: Professor Hicks
3 April 2013
To: LJB Company President
From: Samara Ellison, Accounting Firm
Subject: Evaluation of LJB Company’s Internal Control Structures Date: 3 April 2013
Hello LJB Company President:
First, I would like to thank you for hiring my accounting firm to evaluate LJB’s internal controls system. This report will inform you of any new internal control requirements required for LJB to go public, advise you of what the company is doing right, recommend that LJB purchase an indelible ink machine, and advise you what areas the company can improve.
After observation LJB’s operations, I have determined LBJ needs to make changes regarding its internal controls system. All publically traded companies operations’ must comply with the Sarbanes-Oxley Act (SOX) accounting standards. As cited in by Kimmel (2011), complying with the internal controls practices set forth by the SOX act prevents fraud, encourage efficiency and effectiveness of operations, and insure a company is in compliance with applicable laws. The internal control standards outlined by the SOX act include a control environment, risk assessment, control activities, information and communication, and monitoring. Be informed that companies that fail to comply are subject to fines, and company officers can be imprisoned (Kimmel). LJB’s Encouraged Practices
Many of LJB’s operations comply with the SOX standard, and should continue to be practiced and enforced. One practice that LJB is doing right and should continue doing is using pre-numbered invoices prevents transactions from being skipped over or recorded more than once. The use of renumbered invoices employs the control activities component of internal control. Interviewing new hires is a good practice; however, additional precautions need to be made when bringing new members on the LBJ...