Internal Control

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Internal Control Evaluation
The accounting firm has completed its evaluation of LJB’s system of internal controls. The accounting firm was hired to do this evaluation because LJB have plans on going public. First thing we must do is review if there are any new rules or regulations that will affect a private company changing to a public company. Second, LJB must understand that its internal control system will be enforced by the Sarbanes-Oxley Act of 2002. Under the Sarbanes-Oxley Act, United States corporations are required to maintain an adequate system of internal control. Corporate executives and boards of directors must ensure that these controls are reliable and effective. Companies that fail to comply are subject to fines and company officers can also be imprisoned. If LJB follow the Sarbanes-Oxley Act guidelines, investors are more likely to do business with your company, therefore increasing the company’s profit margin. Going from a private company to a public company requires some extensive planning and preparation. Our firm recommend that LJB being a relatively small sized company in terms of its employees should re-examine the costs versus the benefits of being a public traded company.

Internal control systems have five primary components to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations and ensure compliance with laws and regulations and they are: a control environment, risk assessment, control activities, information and communication, and monitoring. Each of these components are important, however we are going to focus on control activities. Control activities are the backbone of the company’s efforts to address the risks it faces. There are six principles for control activities: establishment of responsibility, segregation of duties, documentation procedures, physical controls, independent internal verification, and human resource controls.

In our evaluation it was found that...
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