Internal Control

Internal Control

Jason T. Viglione

Jason.Viglione@gmail.com

ACCT504 – Accounting and Finance: Managerial Use and Analysis

Professor Sean Wright

April 5, 2014

Introduction

LJB is a small and lean company that has been relying on one position to handle most of the accounting procedures. They have also placed a large amount of faith in each of the individual employees. Their internal controls show a solid effort in understanding of importance. However, the execution has fallen short in a number of ways. Given the size of the company to this point, their efforts will have sufficed. Since they plan to go public in the future, they will have to increase their controls and change the approach dramatically. Changes will not only meet regulatory compliance, but will also reduce risk to the company.

There are several things in place that are being handled appropriately and several that need to be changed. All efforts are outlined in this report, along with results and recommendations. This report will also address any needed additional controls, beyond analysis of those currently in place.

New internal control requirements

There are certain things required of public companies that LJB will have to implement, should they decide to go public. According to the Sarbanes-Oxley Act (SOX), the company must issue a report on internal controls. LJB does not currently do this. Also, the company must have an outside auditor report on the soundness of the internal controls. A report such as this is an example of that, but must be done by an auditor. Per SOX, we cannot both consult on their internal control procedures and audit them as well. Section 404 of SOX outlines this requirement.

According to EisnerAmper Accountants & Advisors, a company must report on internal controls in its annual report. It must contain the following elements:

 Statement of Responsibility by Company Management (the CEO and CFO) for establishing and maintaining an adequate internal control...