Fi 504 Case Study 2
LJB COMPANY: Internal Control Review
I. NEW INTERNAL CONTROL REQUIREMENTS FOR GOING PUBLIC
Sarbanes-Oxley Act of 2002 (SOX), enacted on July 29,2002, is a United States Federal law that imposed new rules and regulations for all US public companies.
Under SOX Section 404, all publicly listed corporations are required to maintain an adequate system of internal control. Under SOX, corporate executives and the board of directors are personally responsible for making sure that the internal controls in place are effective and reliable. Independent auditors should also attest to the reliability of the said internal controls. Failure to do so would result to fines and/or imprisonment1.
The following should be included in LJB Company’s annual report if the company decides to go public: * A statement of the management’s responsibility for establishing and maintaining effective internal control * A statement specifying the framework that the management used to evaluate the effectiveness of the company’s internal control * Management’s assessment of the effectiveness of their Internal Control. It must also include any “material weaknesses” currently present. The internal control is only deemed effective once all material weaknesses are properly addressed and solved. * A statement that a registered public accounting firm has issued an attestation report on the management’s internal control .2
If LJB Company decides to go public, it must take into account the cost against the benefits of doing so. The increased standard of internal control requires a lot of funding and will probably require them to add employees in order to keep up with the more stringent demands in financial reporting among other costs.
II. LJB COMPANY: EFFECTIVE INTERNAL CONTROLS
A. Effective internal controls in place
1. Documentation Control: By using pre-numbered invoices, LJB Company is maintaining an excellent control of documentation by making sure
I. NEW INTERNAL CONTROL REQUIREMENTS FOR GOING PUBLIC
Sarbanes-Oxley Act of 2002 (SOX), enacted on July 29,2002, is a United States Federal law that imposed new rules and regulations for all US public companies.
Under SOX Section 404, all publicly listed corporations are required to maintain an adequate system of internal control. Under SOX, corporate executives and the board of directors are personally responsible for making sure that the internal controls in place are effective and reliable. Independent auditors should also attest to the reliability of the said internal controls. Failure to do so would result to fines and/or imprisonment1.
The following should be included in LJB Company’s annual report if the company decides to go public: * A statement of the management’s responsibility for establishing and maintaining effective internal control * A statement specifying the framework that the management used to evaluate the effectiveness of the company’s internal control * Management’s assessment of the effectiveness of their Internal Control. It must also include any “material weaknesses” currently present. The internal control is only deemed effective once all material weaknesses are properly addressed and solved. * A statement that a registered public accounting firm has issued an attestation report on the management’s internal control .2
If LJB Company decides to go public, it must take into account the cost against the benefits of doing so. The increased standard of internal control requires a lot of funding and will probably require them to add employees in order to keep up with the more stringent demands in financial reporting among other costs.
II. LJB COMPANY: EFFECTIVE INTERNAL CONTROLS
A. Effective internal controls in place
1. Documentation Control: By using pre-numbered invoices, LJB Company is maintaining an excellent control of documentation by making sure