Case Study 2- Internal Controls
Content
Introduction…………………………………………………………………………...3
Public Offering….….….………………….………………….…………….…………3
Getting it Right………………………….………………….…………………………4
Things to Ponder…………….………….………………….…………………………5
Conclusion……………………………………………………………………….......7
References……………………………………………………………………….......8 Introduction
LJB Company wishes to move forward and become a public entity. Good corporate governance within an organization may make a company more attractive to potential buyers, investors, and other capital sources. Under SOX Section 404, all publicly traded U.S. corporations are required to maintain an adequate system of internal controls. Corporate executives and boards of directors must ensure that these controls are both reliable and effective.
Public Offering
The transformation of going from a private to public requires some extensive planning and preparation. It is recommended that LJB, being a relatively small sized company, should reevaluate the costs versus the benefits of becoming a publicly traded company. If the decision is made to issue stock, it would be wise to first complete an internal control report as well as answer the following questions:
(1) How many shares should be authorized for sale?
(2) How should the stock be issued?
(3) What initial value should be assigned to the stock?
The content of this internal control report is based on the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. The major independent components of the internal control system should always include:
• Control environment
• Risk assessment
• Control activities
• Information and communication
• Monitoring
It’s been noted that not all the components of an effective internal control system are present within the control components of this company. If LJB decides to go public in the
Introduction…………………………………………………………………………...3
Public Offering….….….………………….………………….…………….…………3
Getting it Right………………………….………………….…………………………4
Things to Ponder…………….………….………………….…………………………5
Conclusion……………………………………………………………………….......7
References……………………………………………………………………….......8 Introduction
LJB Company wishes to move forward and become a public entity. Good corporate governance within an organization may make a company more attractive to potential buyers, investors, and other capital sources. Under SOX Section 404, all publicly traded U.S. corporations are required to maintain an adequate system of internal controls. Corporate executives and boards of directors must ensure that these controls are both reliable and effective.
Public Offering
The transformation of going from a private to public requires some extensive planning and preparation. It is recommended that LJB, being a relatively small sized company, should reevaluate the costs versus the benefits of becoming a publicly traded company. If the decision is made to issue stock, it would be wise to first complete an internal control report as well as answer the following questions:
(1) How many shares should be authorized for sale?
(2) How should the stock be issued?
(3) What initial value should be assigned to the stock?
The content of this internal control report is based on the related methods and measures adopted within an organization to safeguard its assets, enhance the reliability of its accounting records, increase efficiency of operations, and ensure compliance with laws and regulations. The major independent components of the internal control system should always include:
• Control environment
• Risk assessment
• Control activities
• Information and communication
• Monitoring
It’s been noted that not all the components of an effective internal control system are present within the control components of this company. If LJB decides to go public in the
References: Kimmel. Financial Accounting. 6. VitalSource Bookshelf. John Wiley & Sons, , Saturday, December 01, 2012. http://devry.vitalsource.com/books/9781118233634/id/B12-2 Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified as amended in scattered sections of 15 U.S.C.).