Ljb: the Journey to Going Public

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LJB Company

February 10, 20123
LJB: The Journey to Going Public
LJB’s Current Internal Controls an evaluation and recommendations LJB Company

Table of Contents

Introduction1
Current State Assessment of LJB2
Gap Assessment3
Recommendations4 - 5
Summary and Conclusion6
Appendix7
References8

Introduction
In 2002 the Sarbanes-Oxley Act was passed which requires all publically held organizations, regardless of size, to comply with eleven titles of financial practices and corporate governances to maintain an adequate system of internal control. Of those eleven, there are five sections that address compliance and need particular consideration when becoming publically traded company, these are: Section 302, 401, 404, 409 and 802. (http://www.soxlaw.com). Sarbanes-Oxley introduced major changes to regulations that govern publicly traded companies. SOX also established the Public Company Accounting Oversight Board (PCAOB). (Sarbanes-Oxley Act 2002 (n.d.) Retrieved from: http://www.soxlaw.com). The legislation was not passed to be cumbersome but as an attempt to regain people’s support after several financial scandals among large corporations. There’s several reasons why a company should have proven and secure internal controls: * Safeguard Assets

* Enhance accuracy and reliability of accounting records
* Increase efficiency of operations
* Ensure compliance with laws and regulations

Internal control consists of all the related methods and measures adopted within an organization to safeguard its assets. (Kimmel, Weygandt, Kieso, 2011) Internal control has Five Primary Components: 1. Control Environment

2. Risk Assessment
3. Control Activities
4. Information and Communication
5. Monitoring
First since LJB is currently a privately held company they are not required to follow SOX, however the future plan is to become a publically held company and therefore the evaluation and recommendations within this report should be considered mandatory as LJB makes the journey from private to public. This reports details what the current state of LJB’s internal control processes, references the five primary components of Fraud and Internal Control, then lists a gap assessment, recommendations of what the next steps are for LJB to continue down the path of going public and then lastly a summary. Findings reveal there are several processes that are being completed well at LJB in additional it highlighted processes that need to be improved so LJB can be in compliance with SOX.

The first step in establishing a controlled environment and maintaining internal control activities is to follow 3 main principles.

* Establish Responsibility – Who is responsible for what tasks? * Segregation of Duties – Require related activities to be performed by different individuals * Documentation Procedures – All documents should be organized and clearly accounted for. Current State of LJB

* Treasurer and Controller combined role with minimal controls- This single accountant holds both positions; duties include but not limited to: * Purchases all supplies
* Pays all supply bills
* Receives all the checks
* Completes months bank reconciliation
* Handles petty cash fund, all employees have access to it * Uses pre-numbered invoices
* Distributes paychecks and locks them in a safe located in his office * Human Resources unknown controls for managing or hiring of employees: * One documented case of employee misconduct

* No documented procedures for granting employee access this includes but not limited to computer systems, intellectual assets or physical access to safes and petty cash drawer. * Payroll Duties – Printed checks remain with accountant for employees to pick up. * Unknown if accountant remains in their office the entire day on payday * Checks are locked in the safe located in the accountants office

LJB has a history of...
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