Acct504 Case Study 2

Topics: Internal control, Audit, Auditing Pages: 2 (637 words) Published: April 14, 2013
Case Study #2 – Internal Control

1. The decision to take LJB Company public will require the company to follow new control procedures. The company will have to comply with The Sarbanes-Oxley Act of 2002 (SOX). The company will be required to maintain an acceptable system of internal control. The board of LBJ will be responsible for warrant that the control process is effective. The companies must have external auditors verify to the adequacy of the internal controls put in place. Be aware if the company does not pass or is not found in compliance they do stand the risk of losing some investors. The Act can be deemed as valuable to the company as well and could make LBJ more value and save them time and money if redundancies are found. In addition with it can increase investor confidence in the company.

2. The strengths of the LBJ company are as follows:
a. Purchasing the indelible Ink machine. Would be in compliance with physical control. It will cut the cost of having an outside vendor do them. It will also cut down fraudulent activity. b. Using the pre-numbered invoices that the accountant has recently started is part of documentation procedures and falls within the Cash Disbursement Control. It will also prevent duplicate payments and checks. c. Locking the checks up while the building isn’t occupied is puts the company in compliance with physical control. d. Having the accountant receive the checks and complete the monthly bank reconciliation is a very good process to ensure discrepancies and fall within the documentation procedure of cash control. It will help cut cost since the company is able to print their own checks.

3. The LBJ company has several weaknesses that need to be corrected: e. The account performs the duties as the Treasure and the Controller. It’s a violation of segregation of duties. My recommendation is to separate the duties, and hire someone to perform the duties as the...
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