Case Study 2 – Internal Control
Case Study 2 – Internal Control
TO: LJB Company President
FROM: Accounting Firm
DATE: August 12, 2012
SUBJECT: Internal Control
It is with great pleasure that we can provide you information and advisement on internal controls that will assist LJB Company with going public. We understand that you have communicated your concerns and expect that this report will assist you with deriving conclusions. This report will: 1. Inform you of any new internal control requirements in reference to going public. 2. Advise and make recommendations on what the company is doing right. 3. Advise and make recommendations on what the company is doing wrong.
RECOMMEDATIONS:
1. A key distinction of a company going public over a private company is that the public company must abide by the rules of the Security Exchange Commission. One of the tasks a new public company will undertake is providing the financial details of the entity which will be readily available to the public – thus known as financial reporting. The Committee on Sponsoring Organizations framework is widely regarded as an appropriate and comprehensive basis to document the assessment of internal controls over financial reporting. It is important that LJB Company reviews and implement these standards. 2. There are some tasks that the company is doing well. These tasks consist of using pre-numbered invoices, and placing the payroll checks that were not retrieved into a safe. “Pre-numbering helps to prevent a transaction from being recorded more than once, or conversely, from not being recorded at all. Second, the control system should require that employees promptly forward source documents for accounting entries to the accounting department. This control measure helps to ensure timely recording of the transaction and contributes directly to the accuracy and reliability of the accounting records. (Kimmel, 341). The application of documentation procedures and physical control can be seen with the
TO: LJB Company President
FROM: Accounting Firm
DATE: August 12, 2012
SUBJECT: Internal Control
It is with great pleasure that we can provide you information and advisement on internal controls that will assist LJB Company with going public. We understand that you have communicated your concerns and expect that this report will assist you with deriving conclusions. This report will: 1. Inform you of any new internal control requirements in reference to going public. 2. Advise and make recommendations on what the company is doing right. 3. Advise and make recommendations on what the company is doing wrong.
RECOMMEDATIONS:
1. A key distinction of a company going public over a private company is that the public company must abide by the rules of the Security Exchange Commission. One of the tasks a new public company will undertake is providing the financial details of the entity which will be readily available to the public – thus known as financial reporting. The Committee on Sponsoring Organizations framework is widely regarded as an appropriate and comprehensive basis to document the assessment of internal controls over financial reporting. It is important that LJB Company reviews and implement these standards. 2. There are some tasks that the company is doing well. These tasks consist of using pre-numbered invoices, and placing the payroll checks that were not retrieved into a safe. “Pre-numbering helps to prevent a transaction from being recorded more than once, or conversely, from not being recorded at all. Second, the control system should require that employees promptly forward source documents for accounting entries to the accounting department. This control measure helps to ensure timely recording of the transaction and contributes directly to the accuracy and reliability of the accounting records. (Kimmel, 341). The application of documentation procedures and physical control can be seen with the
References: Kimmel. Financial Accounting, 6th Edition. John Wiley & Sons. <vbk:9781118233634#outline(7.6.5.4)>.